Wondering if now is the time to refinance your federal loans currently receiving student loan COVID-19 relief? Under normal times, most doctors refinance their federal student loans as soon as they no longer qualify for the Revised Pay As You Earn (REPAYE) subsidies and know they are not attempting to receive student loan forgiveness through the Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) Forgiveness Programs. For most, that means refinancing once they have an attending contract in hand. Naturally, private student loans can be refinanced at any time.
However, the last 15 months have been anything but normal from the perspective of federal student loan management. Back in March 2020, President Trump took executive action declaring coronavirus student loan relief. Those executive orders were subsequently extended by Congress, and then the Biden administration. Federal student loan borrowers have not had a mandatory payment since March 2020 and their interest rates have been set at 0%. Unfortunately for them, the relief is scheduled to come to an end on September 30, 2021. At that time, interest rates will go back to normal rates and payments must resume or the borrower will be in default.
0% Coronavirus Student Loan Relief Ends January 31st
So naturally, most federal student loan borrowers not planning to get PSLF or IDR forgiveness are making plans to refinance their loans by February 1st. Perhaps they will start their applications about January 1st and plan to finalize them by the end of the month. However, there are a few reasons they might want to consider refinancing even earlier. Naturally, people make money when you refinance your federal loans. These people include the student loan refinancing companies and The White Coat Investor. We all want you to refinance early and often and heavily incentivize you to do so. But just because we want you to refinance and we make money when you do through our affiliate links, doesn't mean it is a bad deal for you. It's usually a win-win-win-win situation for you, the lender, the taxpayer, and us. Everybody comes out better off.
Is Now a Good Time to Refinance Student Loans?
There are six great reasons to refinance your loans now rather than waiting for February.
# 1 Get Cash Back
The first reason is that when you refinance through White Coat Investor links, you get cash back. Those deals vary by the company you use, and the deals change from time to time, but at the time of this writing, that ranges from $300 to $1500 back to you. Depending on the company, that money may be applied to your loan, sent to you as a check, or just deposited in your bank account. You can do whatever you want with it, although I would hope you would apply it to your loan balance to pay those loans off even faster.
Every time you refinance with a new company through our links, you can get more cash. You could potentially make thousands through multiple refinances.
# 2 Get a Free Online Course
We've sweetened the deal even further. Most people refinancing their student loans also need help becoming financially literate and putting a written financial plan in place. I know of no better resource to do this than our flagship Fire Your Financial Advisor online course. This 10-hour course, updated and upgraded for 2021, is worth $799 and right now is yours absolutely free when you refinance your student loans through White Coat Investor links. Including the cash back and the course, the total value when you refinance through WCI links ranges from $950 to $2300! While no final decision has been made, this sweetener may not be there if you wait until October. (Hint, hint.)
# 3 Get the Same 0% No Interest Deal
The main reason people have not wanted to refinance their federal loans for the last year is because federal loans are currently at 0%. Who can blame them? Even if you are making big old payments in order to pay off your loans rapidly, 0% is still a great deal. However, you no longer have to give up 0% until October 1st when you refinance. One of our partners, SoFi, will let you keep that 0%, no payment deal. That's right, same deal you're getting with the government through October 1st, but you can get a lower long-term interest rate, cashback, AND Fire Your Financial Advisor.
You can lock in a low rate for your federal student loans without making monthly or interest payments until October, through SoFi, avoiding the potential risk of interest rates rising in the fall. You effectively pause your payments by signing their disclosures to disburse the loan in the fall. Before the loan is disbursed in September, you may cancel and stay with your federal program if you decide you no longer want to refinance. If you wait until September for disbursement of your loan, you would receive your cash back and FYFA course after the loan disburses this fall. Added bonus SoFi has a rate guarantee. If a competitor offers a lower rate, they will match it and give you $100 when your loan is funded (Terms apply).
# 4 Get a Longer 0% Deal
As if the SoFi deal isn't awesome enough, CommonBond has one-upped them. They are offering a 6-month 0% deal. Since October 1st is now less than 6 months away, this is a BETTER deal than the government is offering. You will have to make payments but maybe you won't have to pay interest until December, January, or even next March. Plus you get a lower long-term interest rate, cash back, and Fire Your Financial Advisor. If you're not going for loan forgiveness, this is pretty close to a no-brainer deal. Currently CommonBond is not accepting 1099 income though.
# 5 Rates May Go Up
Inflation has reared its ugly head this Spring. The usual Fed response to inflation is to start raising interest rates. Guess what? Those higher rates will apply to refinanced student loans, too. Now my crystal ball is cloudy as far as future interest rates, but if rates go up between now and February, you're going to wish you took that SoFi or CommonBond deal. If rates go down, no big deal, you can just refinance again. If they stay the same, again, no big deal since you're getting 0% from now at least until October anyway.
# 6 Avoid the Rush
The refinancing companies have been sitting around twiddling their thumbs and maybe even laying off staff the last 15 months since their refinancing volumes are way down. While I'm sure they are anticipating and planning for higher volumes this winter, it seems probable to me that there is going to be a massive rush of people coming through the doors wanting to refinance the first week of February. That may result in longer waits to fund your loan or even relatively poor service. Why not avoid the rush, get top-notch service, and a quickly funded loan?
3 Reasons You Might NOT Want to Refinance Now
Naturally, there are some potential downsides to refinancing your federal student loans. Just ask the folks who refinanced in February 2020. I'll discuss three of them.
# 1 Might Go for Forgiveness or Need IDR
The main reason NOT to refinance is if you are going for PSLF or IDR forgiveness. Once you refinance, your federal loans become private loans and are no longer eligible to be forgiven by the government. You also are no longer eligible for lower IDR payments, the REPAYE subsidy, and other benefits of federal student loans. You already knew that though, right? But what if something changes in your life. Maybe instead of going out and opening your own practice, you stay on as faculty after fellowship and it turns out you are eligible for PSLF. Something to think about before you close that door.
# 2 Relief Might Be Extended
Since both Republicans and Democrats have extended the student loan holiday, and since both the executive branch and the legislative branch have claimed the ability to do so, you might worry that this holiday will be extended even further than February 1st. While that is entirely possible (again, my crystal ball is cloudy), I think it is unlikely given that the pandemic is rapidly abating in the United States and the economy is rapidly recovering. Maybe virus variants come roaring back, maybe the holiday is extended or a new one is declared down the line at some point before you pay off your loans, but I think it is pretty unlikely. If you do, too, go ahead and refinance.
# 3 A Student Loan Jubilee
In ancient Israel, every 50 years all loans were forgiven. I can't imagine what that did to interest rates between years 45 and 50, but that was the way it was as dictated in Leviticus. Many federal student loan borrowers have been hoping for a jubilee for their student loans. Some politicians take advantage of that hope in order to get elected. In fact, there have been proposals to have $10,000 or even $50,000 of student loans completely forgiven. If you refinance your loans, you would likely be ineligible to participate in loan forgiveness.
However, I think the likelihood of you receiving ANY student loan forgiveness outside the current PSLF and IDR programs is very low. In the event that it does occur, it is likely to be no more than $10,000 (the proposal President Biden supports), which doesn't really move the needle for a typical doctor with $200-400,000 in student loans. The only people floating proposals to cancel $50,000 are way out on the left-wing of the Democratic party: the Elizabeth Warrens and AOCs of the world. There are plenty of mainstream and moderate Democrats and almost all Republicans who oppose the idea, not to mention their constituents who paid off their student loans and would really feel screwed over to see others get their loans forgiven after they worked two jobs to pay off their own loans. Keep in mind the same people who float these larger student loan proposals are also very much against high earners. Even if there were a $50,000 forgiveness proposal, I suspect it would be means-tested. In fact, I'm still amazed that PSLF and IDR forgiveness were not. In short, I think it is foolish to hold off on refinancing student loans just for this reason, but again, my crystal ball is cloudy.
The Bottom Line
It's time to start thinking about those federal student loans again. You need a student loan plan. If you need help running the numbers to develop your plan, consider hiring Andrew at StudentLoanAdvice.com to help you. But at some point in the next few months, most doctors with federal student loans are going to want to refinance their student loans. Earlier may be better than later.
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† 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 Aug 31, 2022. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
What do you think? When will you refinance and why? Comment below!