By Dr. James M. Dahle, WCI Founder
You may have decided to refinance your medical school loans in residency. For private loans, this is usually a no-brainer. Not only do you get a lower rate, but you also get to benefit from the $100 per month payments during your training offered by the four lenders in the table below. You also get hundreds of dollars in cash back if you refinance through the links on the White Coat Investor website, and if you refinance at least $60,000, we give you our flagship Fire Your Financial Advisor online course (a $799 value) for free.
For federal loans, the decision is not nearly so easy. The default choice, in fact, is probably to not refinance them until the end of residency so you can get the benefits of the Income-Driven Repayment (IDR) programs such as the Revised Pay As You Earn (REPAYE) subsidy, IDR Forgiveness, and/or Public Service Loan Forgiveness (PSLF). However, there are situations when it does make sense to refinance federal loans in residency. Mainly, these are people who are not planning to go for any type of loan forgiveness and are receiving little or no REPAYE subsidy due to their own or their spouse's income.
Once you have decided to refinance your student loans during residency, you can follow this step-by-step guide.
Step 1 – Decide What Your Financial Goals Are
What are you trying to accomplish with regards to your student loans? Are you trying to pay them off as quickly as possible? Are you trying to minimize the amount you pay? Or are you trying to improve your cash flow (i.e. lower your monthly payment) so you can put your hard-earned dollars toward a more important financial goal for now. Perhaps you are trying to get some cash or even a free online course. Refinancing can assist with all of these goals, but it is best to begin with the end in mind.
Step 2 – Get Your Credit Score and Credit Report
When you refinance your student loans, you are dealing with private lenders. Unlike the federal government, which will lend hundreds of thousands of dollars to you if you have a pulse and a medical school acceptance in hand, private lenders expect to be paid back. They want to make a profit off your business. So, they care about your debt-to-income ratio, and they certainly care about your credit score. They want to know you are going to pay them back. Just like when you go to borrow money for any reason, you want to have as high of a credit score as possible. Find out what your score is.
You can often find out your credit score for free using deals offered by your credit card company or by signing up for a service like Credit Karma, Credit Sesame, Credit.com, or WalletHub. You may end up paying something to get the score itself. However, the credit reports from the three reporting companies (Equifax, Experian, and Transunion) are free to obtain once a year at the appropriately named and government-authorized AnnualCreditReport.com. One of the best ways to ensure a great credit score (aside from the rather obvious path of borrowing money and then paying it back as agreed for years on end) is to make sure the information in your credit reports is actually accurate.
Usually, a score of 740-760 or higher is good enough, but it is possible to refinance with a lower score. The higher the score, the better your interest rate will be and the more options you will be offered.
Step 3 – Request Quotes from the Best Student Loan Refinancing Companies
Here at The White Coat Investor, we have been partnering with all of the top student loan refinancing companies for years. However, they do not all refinance your student loans during your residency and fellowship. As you can see in the chart below, only four of them are currently refinancing loans for residents.
Variable 2.49% - 8.24% APR
Fixed 3.99% - 8.24% APR
^Up to 0.75% off rates
Variable 2.25%-6.05% APR
Fixed 3.74%-6.15% APR
*with linked checking
Variable 1.86%-9.23% APR
Fixed 2.40%-9.73% APR
^Best Rate Guarantee
† Bonus includes cash rebates and value of free course. Borrowers who refinance more than $60,000 in student loans using the WCI links will be enrolled in The White Coat Investor’s flagship course, Fire Your Financial Advisor for free ($799 value). Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted from May 1, 2021 through Dec 31, 2022. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
You should apply with all four of these companies. As a general rule, you can get an initial quote with just a soft credit pull (which does not lower your credit score). Each of these companies offers $100 a month payments during your training, although the details vary slightly. For example, some make you reapply if you enter a fellowship, and some will even extend those $100 a month payments for six months into attendinghood. It is quick and easy to get those quotes and even quicker and easier to get your second (or third, or fourth) quote once you have gathered the paperwork necessary to get one.
We obviously have a business relationship with each of these companies. If you refinance your loans through these links, you are helping to support this site and you are also getting hundreds of dollars in cash back and our Fire Your Financial Advisor online course for free. It's really a win-win-win for everybody involved.
What Information Do You Need Ready for Loan Refinancing Applications?
There are basically three pieces of information the lenders care about.
#1 They obviously care about your credit, but they don't ask you how your credit is. They go to the reporting companies to get that.
#2 They care about your income. If you are an employee, you will need to provide pay stubs demonstrating your income. If you have other significant income (investment income or business income), you may also want or need to provide proof. If you are self-employed, it can be a little tougher. Ideally, you have two years worth of tax returns demonstrating a high, stable income. If you do not have that, they may not refinance you at all or may simply offer you less ideal terms, such as a higher interest rate.
#3 They care about your debt, including all of your student loans as well as other debts. While they will check that information against your credit report, they also usually require you to provide some information about each of your student loans. So, you will want all of your student loan information handy when you apply. Every year, the process gets simpler and some people can apply in just a few minutes using only their smartphone.
Step 4 – Compare Each of the Quotes
Next, put all of the quotes you have received next to each other. For the most part, you are simply comparing interest rates. However, if one lender or another didn't offer you the same terms, you may need to take those into consideration as well. Obviously, the interest rate on a 10-year loan is going to be higher than one for a five-year loan as the lender is taking on more risk. So make sure you are comparing apples to apples.
Keep in mind the other benefits of one company over another, such as how they might treat you in the event you become delinquent, what happens to your loans if you die or are disabled, and when you have to start making “full” payments instead of those little $100 per month payments.
Finally, you may want to compare the cash back bonus you will get by refinancing through The White Coat Investor links. They are not all the same, and one lender may give you more cash back than another.
Step 5 – Determine How Much You Plan to Pay Each Month Toward Your Loans
Next, determine how much you are willing to put toward these student loans each month, both during residency and once you are finished with your training. Most residents are probably perfectly content to put just $100 a month toward them. While the loan balance will continue to grow, a resident often has a better use for the money.
However, as an attending you know you will eventually have to pay these off so you might as well get started. In fact, I encourage attendings to live like a resident for 2-5 years after residency primarily so they can get the student loan monkey off their back early in their career before they get used to the big bucks. While it might require some guesswork (and may not even matter since you'll probably refinance your loans again as you finish your training), I would encourage you to project out how much you can put toward those loans each month as an attending.
Step 6 – Select the Lender That Provided the Lowest Interest Rate and Shortest Repayment Length That You Can Afford
If you have decided you can put $5,000 a month toward your payments as an attending, you don't want a loan that will require you to put $10,000 a month toward them. You want the lowest interest rate you can get for the repayment length you need. I would encourage you to be aggressive here, though. Many white coat investors have had great success with a five-year, variable student loan. By committing to being done in less than five years, it focuses your mind and your financial power on the task at hand. The variable rate is also usually lower (and can decrease from there), and most attendings committed to a five-year (or less) payoff period can weather the consequences of rising rates just fine.
Step 7 – Proceed Through the Application with the Selected Lender
Once you have chosen a lender and a loan, you can finish the application. It's a simple process, and within a few weeks, your old lender will be paid off and you will be receiving all the benefits of refinancing including:
- A lower interest rate
- Fewer loans to keep track of
- Better cash flow
- Better service from your lender
- Cash back
- A free WCI online course
What do you think? Did you refinance your student loans during residency? Who did you use? How was your experience? How do you think refinancing early helped you reach financial goals? Comment below!
[This updated post was originally published in 2018.]