Are you curious about refinancing medical student loans?
Medical school graduates owe up to seven times more than the typical college student. More than 70% of medical school debt with as much as 40% also having undergraduate student loans.
The average medical school debt is more than $202,450; undergraduate debt adds an average of $48,000 to this sum. These figures don’t include the significant credit card debt many students have to take on to keep up with their living costs throughout med school.
Medical residents’ salaries vary tremendously based on their specialty, program, and geographic location, but the nationwide average sits at about $80,000 annually or $38 per hour.
The average student loan payment falls between $200 and $300 per month, but this number can vary significantly depending on the loan amount, repayment plan, and interest rate. Even at this payment amount, it can be difficult to make a dent in the principal loan balance when interest continues to grow.
The financial burden of student loans can be debilitating and demoralizing for medical professionals who work long hours and make sacrifices to provide healthcare to those in need.
Student loan refinancing can help stressed and burnt-out physicians lower their monthly payments, extend their loan term, secure a lower interest rate, and even earn a cash bonus.
With that said, refinancing medical student loans isn’t the best option for everyone.
In this article, we’ll provide you with all the information you need to take charge of your student debt, understand your current loan, and make a prudent decision that aligns with your financial goals.
skip down to see the best companies for refinancing medical school loansGlossary of Student Loan Refinancing
Before we proceed with any advice or refinancing options, it’s important to define a few key terms. Below are some need-to-know definitions that can help you make an informed decision for your needs.
- Capitalized interest: Unpaid interest is added to the principal loan balance; often happens when a loan enters default or consolidates
- Cosigner: Individuals who don’t meet the qualifying terms for a loan can have another person apply for the loan with them
- Consolidation: Refinancing student loans can allow you to reduce multiple loans into one convenient monthly payment
- Debt-to-income ratio: Financial institutions use a formula to calculate how much of your monthly income goes to paying down debts before approving a loan
- Default: After a number of payments aren’t made on time, a lender can request the entire loan balance to be paid immediately, instead of the previously agreed-upon monthly payments. This process happens when a loan is in default.
- Deferment: Federal student loan payments can be delayed if you’re unemployed or enrolled in school
- Disbursement: Funds from other loans can be used to pay down old student loans; when this happens, it’s called disbursement
- Discharge: Occurs when student loan debt is canceled
- Federal student loans: Provided by the U.S. Department of Education, often at a higher interest rate than private loans
- Forbearance: A period of time where monthly payments aren’t required, but loans continue to accrue interest
- Grace period: A period of time immediately following graduation where monthly payments are not yet required
- Interest rate: Can be fixed or variable over the loan term; this rate is a previously agreed-upon percentage of your total loan amount that you’ll be required to pay in addition to the original loan balance
- Loan forgiveness: Some loan forgiveness programs will forgive student loans for qualifying applicants after at least 120 monthly payments and a career in certain public service professions
- Principal balance: The amount originally borrowed from the lender before fees and interest
- Private student loans: Financed by a bank or credit union, instead of the U.S. Department of Education; typically not available for student loan forgiveness
- Servicer: A company or financial institution responsible for processing payments and providing customer service
- Student loan refinancing: A process of taking out a new private loan to pay off private and/or federal student loans
Can you refinance medical school loans?
Yes, you can refinance medical school loans. There are hundreds of options and dozens of providers, so it’s important to understand your unique situation and your big-picture financial goals.
Many med school students take out 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.
Can you refinance student loans while in medical school?
Yes, you can refinance student loans while in medical school, residency, or later in your career. Only you will be able to figure out the best time to refinance, so it’s important to meet with advisors you trust while thoughtfully examining your credit history, loan types, and desired outcomes.
Many companies will allow you to see if you qualify without pulling a hard credit check, so it won’t affect your credit score to shop around. However, it’s also important to note that individual lenders reserve the right to reject residents because it can be a riskier loan.
If you’re interested in refinancing medical student loans while you’re still in training, you’ll need to confirm the lender will work with your income, employment status, and income.
The Basics Of Refinancing
Refinance In simple terms when you replace a current debt (such as student loan debt) with a new loan with new conditions, loan terms, monthly payments, and interest rates.
When borrowers refinance a loan, it’s typically in service of a financial goal.
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 loan term. Lower interest rates could potentially allow you to pay off the loan sooner.
Or your goal could be to restructure your loan with a fixed rate after years of variable interest, also referred to as variable APR. Perhaps you don’t like the uncertainty of knowing exactly what your monthly payment will be and you’d like to count on your interest rate staying the same until you pay off the loan.
You may also be looking to adjust your repayment plan to accommodate a lower monthly payment. Maybe your current monthly payments limit your budgeting options, leaving you with little money to save, invest, or do things you love despite your high earning potential. However lowering your monthly payment can extend your loan term.
If you have multiple loans – which is common 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 define your financial goals 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.
Remember refinancing student loans is different from loan consolidation. Oftentimes
When you research student loans, you will see consolidation and refinancing used interchangeably. But these are two very different terms when it comes to medical school debt.
Consolidation vs Refinancing
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 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 you likely 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, credit history is the determining factor with this type of loan.
Consolidation
Refinancing is distinctly different from consolidation in that refinancing is offered by private lenders whereas student loan consolidation is a specific type of program for federal student loans. 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.
Refinancing
Unlike consolidation, you can refinance both private and federal 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 offering refinance options.
Refinancing has numerous benefits. The lower interest rate from refinancing can save you thousands throughout 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.
What are the risks of refinancing medical student loans?
There are a few notable risks you’ll want to consider before refinancing student loans.
First and foremost, the risk of refinancing student loans is you may not always be approved for the program that would benefit you the most.
Refinancing federal student loans comes with the largest sacrifice, whereas it’s often advantageous to refinance private student loans often.
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 for the first 10 years of your career, then a refinance could be a good option for you.
However, refinancing federal student loans will also force borrowers to sacrifice federal benefits, such as forbearance and deferment. Forbearance and deferment can both protect you in the event you are struggling to make your monthly payments due to financial hardship, unemployment, or other issues.
In 2023, student loan forgiveness is a hot button topic and there is the possibility that as much as $20,000 in debt could be canceled for individuals making less than $125,000 per year.
At this time, we recommend pausing any federal student loan payments, consolidation, or refinancing until the Supreme Court makes a decision on the program.
All federal student loans issued after July 2006 have a fixed rate of interest. Refinancing federal student loans with a private lender can introduce a variable interest rate into the equation, which could increase your monthly payments.
It could make sense to refinance private student loans if you can find a lower interest rate or if you can move into a fixed interest rate. Since your private loans don’t qualify for an income-driven repayment plan or the PSLF, you don’t have to worry about missing out on future benefits when you refinance.
Will medical student loans be forgiven?
The Public Service Loan Forgiveness (PSLF) program applies to many physicians who work in the public sector or at a qualifying non-profit.
PSLF is a program administered by the federal government that allows for federal student loan forgiveness if you have worked in some sort of government or non-profit entity for at least 10 years.
There are several requirements for the program in addition to the minimum 10-year condition. One of the stipulations is that you have made 120 monthly payments towards your federal loans.
If you’ve had a time when you were unemployed or defaulted on your federal loans, then that time does not count towards the required 10 years and 120 monthly payment requirement.
If you refinance any or all of your federal loans into one private loan before meeting the 10-year public service requirement, then you will automatically lose your eligibility for the PSLF benefit.
Most likely, if you plan on working for a non-profit or a public hospital, then the benefit of the PSLF would far outweigh a lower interest rate you may or may not get by refinancing your federal loans.
It’s important to note that private loans aren’t eligible for PSLF.
One of the conditions for PSLF is that the program only offers forgiveness for your federal Direct loans.
If you happen to have a Perkins or an FFEL loan, then you will need to consolidate those specific loans into a Direct Consolidation Loan to qualify for loan forgiveness.
What is a Federal Direct loan?
A federal Direct loan is a student loan originated by the U.S. Department of Education.
Chances are if you’ve taken out or consolidated federal student loans after July 2010, you have a federal direct loan. However, federal direct loans were available before July 2010, so it’s possible that earlier loans also fall into this category.
Federal Direct Loans can fall into four programs:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
If you’re unsure what type of federal loan you have, you can check with the U.S. Department of Education.
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 program to refinance. 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.
If you have federal loans and you 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 Revised Pay as You Earn (REPAYE) or Pay As You Earn (PAYE), then you will also lose out on the interest subsidies for those student loan repayment plans.
Private loans have slightly different refinancing options. During residency, many physicians are flooded with offers from well-known companies to refinance their loans. These companies offer attractive terms, such as rate discounts and $100 monthly payments until you have completed your residency.
If you’ve received one of these offers, we recommend you check rates, review the application process, and discuss your options with a financial advisor you can trust.
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 to be confused because these programs can start to get confusing – especially when you’re 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.
Questions to Ask A Financial Advisor Before Refinancing Your Medical Student Loans
If you’re considering refinancing your education loans with any financial institution there are a few key questions you need to answer before you can move ahead with confidence.
- What is the new interest rate?
- Is it a fixed interest rate or a 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.)
Questions to Ask Yourself Before Refinancing Your Medical Student Loans
There are so many options when it comes to student loans that it would be enough material for a college course.
These options include revisiting your repayment terms, consolidating your loans, or getting preapproved for different types of federal or private loans.
It can be incredibly daunting post-graduation to start budgeting for student loan payments. It’s typical to start thinking about ways you can affect the monthly amount you have to pay.
If you’ve been researching refinancing medical student loans, you’ve likely been inundated with phone calls, emails, and targeted advertisements with compelling offers. Sure, it sounds like a no-brainer at first. You combine all your loans, lock in an interest rate reduction, pay less each month, and pay off your total amount in less time.
But is refinancing that simple? As a physician, your time is limited – so it’s safe to say you need to make decisions quickly. Understanding the ins and outs of refinancing medical student loans should be left to the professionals, but there are a few key questions you should be able to answer so you can confidently decide your financial future.
While there are certain situations where a refinance could make sense, there are times when it might not. We have put together a list of 10 questions you’ll need to answer to determine if refinancing your medical student loans is right for you
1. Do I Have Federal or Private Loans or Both?
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 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 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 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.
2. How Much Do I Owe for Each Individual Loan?
Finding out each loan amount 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.
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.
3. What Is My Credit Score?
If you have already pulled your credit report to verify the private loans you have, then you likely have a solid understanding of your credit score and history.
If not, go ahead and pull your credit report. Doing so will prepare you for any questions lenders may have. It can also allow you to address any inconsistencies or dispute any errors.
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. It will also determine the interest rate of your new loan. Higher credit scores tend to have the most favorable loan terms.
Yes, there are other determining factors besides the score, but this is a very important consideration. If your credit history is spotty or could use improvement, you should focus your energy there before you consider refinancing your student loans.
4. What Are the Income Requirements to Refinance My Loans?
Because many physicians have high-income potential, it typically makes them good candidates to refinance their loans early and often.
If you choose to refinance with a bank or credit union with a private loan, then you will be subject to their individual requirements. 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.
In general, you’ll need to make at least $24,000 annually to qualify for refinancing options. For this reason, it’s always better to wait until you’ve started working in your profession before taking the bait to refinance your loans.
5. Will I Need a Co-Signer?
If your income and credit score do not meet the requirements for the lender for you to refinance, then it’s possible you need a co-signer. A co-signer, or co-borrower, on a loan, is someone else who is willing to be financially responsible for the loan in the event that you stop making payments.
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 cosigner 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.
6. Do I Want to Forego an Income-Driven Repayment Plan?
Now we are getting into the area that could be most critical to you as a physician with several loans and mounting debt. You may have heard us reference here at financialresidency.com the various federal loan repayment plans.
If you choose to consolidate your federal loans, then you become eligible to participate in an income-based repayment program. There are four programs available, PAYE, REPAYE, IBR, and ICR.
If you choose to refinance your federal loans, you will automatically forego your repayment options. You will no longer be eligible for an income-driven payment plan.
These repayment plans have several advantages to them – you will need to ask yourself if a lower monthly payment through refinancing outweighs the advantages of the repayment programs. You may be able to get a lower monthly payment by participating in an IBR anyways, so you could improve your payment without having to go through the refinance process.
7. What Will My New Interest Rate Be?
Knowing the new interest rate of the newly refinanced loan is non-negotiable. You have to know this information to see if it is advantageous for you to go through the student loan refinance process. A lower interest rate should mean a lower monthly payment unless you decide to shorten the length of the loan.
One of the few times that refinancing your loans makes sense is if it is for a lower interest rate. If it is higher than what you are currently paying, then rarely would it be beneficial for you. You may also find offers for either a fixed-interest rate or a variable-rate loan.
If you decide to refinance your loans through a private lender, you will be able to shop around for different interest rates. Ultimately, these companies will be competing for your business, which in turn could lead to a very competitive rate for your new loan.
8. What Will My New Payment Terms Be if I Refinance?
If you refinance, it could change the number of months and/or years you have to repay the borrowed amount. Like so many other aspects of your finances, there are multiple payment options when it comes to payment terms.
The longer you have to pay your loans back, then the lower your monthly payment will be. However, you will likely end up paying thousands more in interest over the life of the loan.
The shorter the payment terms, then the higher your monthly payment will be. A shorter amount of time means you should be paying less interest over the life of the loan.
Make sure you have a clear understanding of what your new payment terms will be and how long you will be obligated for the payments.
9. What is My Financial Goal – Lower Monthly Payment, Earlier Payoff, or Something Else?
Before you decide 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 are the specific stressors your loans are inflicting?
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 to achieve your specific financial goal.
10. Would Consolidation Be a Better Option?
Conceivably, you have read this far and realized that you are not willing to forfeit your future benefits from the PSLF or that refinancing might not be the best option for whatever reason. But now what do you do? You still have monthly payments you are obligated to make that you could use a little help with. Have you considered consolidating your loans?
The Department of Education offers the option to consolidate your federal loans. All of your federal loans are combined into one monthly loan payment, with the government being the lender. This is called a Direct Consolidation Loan.
The interest rate is determined by taking a weighted average of the current interest rate that is applied to your federal loans. This may or may not be a lower interest rate than what you are paying, but it does offer several benefits.
The first benefit of consolidation of your federal loans is that you will have the convenience of a single monthly payment.
The second major benefit is that you will then become eligible for the income-driven repayment programs that were mentioned previously.
Again, these are for federal student loans only. If you would like to consolidate private student loans, then you will have to follow a specific process based on each lender. Each private lender will have their requirements for consolidation that you will have to work through, just as you would if you were refinancing your loans.
5 Best Companies for Refinancing Medical Student Loans
We’ve combed the internet to vet and compare the best companies for refinancing medical student loans. No provider is one-size-fits-all, so we recommend shopping around, consulting a financial advisor with fiduciary responsibility, and carefully weighing your options.
The below lenders have positive consumer reputations, work with a range of credit scores, and provide refinancing options to borrowers across the country.
1. Earnest
Here are some key facts to consider about Earnest:
- BBB Grade: A+
- Open to residents? Yes
- Minimum Credit Score: 680
- Variable APR: 4.99% – 8.94%
- Fixed APR: 4.96% – 8.99%
2. Laurel Road
Here are some key facts to consider about Laurel Road:
- BBB Grade: A+
- Open to residents? Yes
- Minimum Credit Score: 660
- Variable APR: 4.74% – 7.65%
- Fixed APR: 4.49% – 7.75%
3. SoFi
Here are some key facts to consider about SoFi:
- BBB Grade: A+
- Open to residents? Yes
- Minimum Credit Score: 650
- Variable APR*: 5.09% – 8.99%
- Fixed APR*: 3.74% – 8.99%
*SoFi may offer auto payment discounts to qualified borrowers.
4. Splash Financial
Here are some key facts to consider about Splash Financial:
- BBB Grade: A+
- Open to residents? Yes
- Minimum Credit Score: 650
- Variable APR: 4.59% – 8.99%
- Fixed APR: 4.47% – 8.99%
5. ISL Education Lending
Here are some key facts to consider about ISL Education Lending:
- BBB Grade: N/A**
- Open to residents? Yes
- Minimum Credit Score: 670
- Variable APR: N/A
- Fixed APR: 6.48%–11.03%
**ISL Education Lending is a non-profit lender that only offers fixed-rate student loan products.
Making a Decision to Refinance Your Student Loans
Tackling student loan debt is a tense, emotional, and often complicated subject. You have to remember that everyone’s situation is different.
Not all financial decisions are created equally and everyone has different priorities, so it’s important to be thoughtful and ask advice if you’re unsure about anything.
In the end, it’s up to you to decide what is best for your finances. You reflect on not only what is best for you now, but also what makes the most sense for you and your long-term goals.
For some of you, that could mean refinancing all your private loans while consolidating your federal loans.
Others may need to choose a different path that doesn’t involve any type of refinancing at all.
Whatever option you choose, you owe it to yourself to ask yourself the hard questions, consult with qualified experts, and take a thoughtful look at your student loan debt.
While many Americans are burdened by student loan debt, avoidance is a common thread.
The knowledge shared in this article should empower you to dig deeper into your finances, protectively communicate with lenders, and make an informed choice based on your unique needs.
