Is Refinancing Medical School Loans A Good Idea? (Adobe Stock)

I don’t need to tell you how expensive medical school is. You’ve been there. You likely took on student loan after student loan just to pay for the textbooks alone. It’s also practically a cliché that doctors end up with a big pile of student loan debt at the end of it.

Just how big does your student debt measure up to the average? Well, according to the Association of American Medical Colleges, the mean student debt for doctors in 2017 was $190,694. That’s about the price of a starter home or condo in some cities.

Luckily, your medical degree is likely to pay off better than a piece of real estate. But the thought of your future earnings won’t help you pay your student loans while you’re still training and completing residencies and fellowships.

After all, no one makes large salaries at that stage in their medical career. So, do you just hunker down and put all your money towards your student debt during those years? You could. Or you might consider refinancing your student loans.

 

How does student loan refinance work for medical professionals?

Basically, refinancing your student debt means that you take out new student loans in order to reduce your interest or monthly payment. You might be able to get a lower interest rate because interest rates, in general, have gone down since you first took out your loans. Or, you might qualify to refinance at a lower rate because you now have a job, a medical degree, and a better credit score—unlike when you were in undergrad or medical school. You can also reduce your monthly payments by extending the term length of your student loans.

To see if you qualify, all you have to do is fill out a quick online application with a lender and in a few minutes you’ll find out whether or not you’re approved. Most lenders will choose whether to lend to you and how much to charge you in interest based on just your credit situation and your income.

Have bad credit? You might be able to qualify for student loan refinance if you get a co-signer. Or you might be able to find a lender that has unconventional underwriting criteria and also look at things like your profession or your future income potential.

The good news about student loan refinance companies is that many will offer refinance loans without charging costly origination fees or pre-payment fees.

You might also want to refinance your student loans with a company that is specifically designed to help doctors who are currently completing their residencies.

 

Can you refinance while in residency?

Refinancing your student loans while you’re in your residency is a great idea because you might struggle to make all your student loan payments and pay for essentials like rent on your small resident’s salary. While you can enroll in income-driven repayment programs with your federal loans, that won’t help you with your private student loans.

By refinancing your student loans during your residency, you reduce the amount that you pay monthly and that could provide much needed financial relief. While refinancing loans the normal way could help you enough, you might also consider refinancing your student debt with loans designed for medical residents.

Some lenders are trying to take the financial burden off doctors while they’re completing their residencies by giving them the option of reduced or nominal payments until they’re done their residencies. Some require that you pay only $100 per month or the interest on your loans, while others don’t require any payments until 6 months after you’re done with your training.

While there are some advantages to these types of loans, you should be careful about ignoring your student loans completely while doing your residency. That’s because they will continue to grow while you’re not paying them.

You might want to pay just the interest or still make payments when you’re able to. Luckily, many of these companies have no pre-payment fees which means that you’ll be able to pay off your debt at whatever rate works for you with no penalties.

 

Can you refinance when you graduate?

Don’t want to wait until you’re in your residency, but want to refinance as soon as you cross the stage and get your diploma? You can do that! However, unless you know your income and have built a solid credit score, you might have a hard time refinancing your debt.

For that reason, you might need someone to co-sign for you if you want to refinance right away. Or you could wait until you have all the details about your residency or job and refinance then.

 

Can you refinance after your residency?

Absolutely! In fact, you could get even better rates then because you’ll have a higher income. Since many lenders don’t charge an origination fee when you refinance, you could refinance more than once or even every time you think you might qualify for better rates because you improved your credit score or increased your income.

 

How much can you save?

How much you can save will depend on your student loan situation. After all, if you borrowed far more than the average student, then you could end up saving more. If you borrowed less? Your savings might not be as dramatic. It will also depend on how much you are currently paying in interest.

If you have $190,000 in debt at an interest of 6% over a 10-year term, you would pay around $2,109 per month and $63,126 in interest if you paid it off without refinancing. If you were able to decrease your interest rate to 3% by refinancing, you would pay around $1,835 per month and a total of $30,158 in interest. That equals a savings of $274 per month and a savings in interest of $32,968 over the life of your loan. That’s not petty change!

 

When does it not make sense to refinance?

Refinancing your student loan debt seems like the perfect solution to all your student debt problems, doesn’t it? But student loan refinance isn’t right for everyone. For example, if you have terrible credit, you might not qualify for a lower rate. While you could potentially refinance your student loans at a higher rate but over a longer term to get lower monthly payments, you’re going to end up paying more over the life of your loans in interest—which is not a good idea.

It also might not make sense to refinance your federal student loans if you’re currently enrolled in an income-based repayment program as it could decrease your interest, but increase your monthly student loan payments since your payments won’t be restricted to just 10% to 20% of your discretionary income.

Hoping to get your student loans forgiven through a federal or state forgiveness program aimed at doctors? You won’t qualify any longer if you refinance your federal student loans.

Despite these downsides to student loan refinancing, there are a lot of benefits to consider. Be sure to do your research to see what makes the most sense for you.

Michael Brown
Mike Brown is a Research Analyst at LendEDU, a site dedicated to helping consumers with their personal finances. At LendEDU, Mike conducts various surveys and studies about consumers spending trends in an effort to better help them. In his free time, you can find Mike scuba diving, playing the saxophone, or walking (yes, really) his cat Philly. You can follow Mike and his work on Twitter @MikeBrownEDU and you can follow LendEDU target="_blank">@GoLendEDU.

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