We originally ran this guide on refinancing medical school loans back in October 2013. This post was my first announcement to readers that it was actually possible again to refinance medical school loans after years of not being able to do it. Since that time I've run at least a dozen posts on the topic but this one is still very popular so I've updated it over and over again for over 6 years now.
The High Cost of Medical School Loans
One of the things I feel the worst about for current students, residents, and new attending physicians is that not only do they have a much higher amount of student loan debt, but they are paying a ridiculously high amount on it. Federal loans were, until recently, offered at a minimum of 6.8%, with many students having a majority of their debt at 7.9%! I find it completely unfair that I can get a mortgage for less than the rate of inflation, and dump it in the case of bankruptcy, but you can't get student loans from the government for twice that AND they can't be discharged in bankruptcy.
Thankfully, Congress and the President have provided a little bit of relief with a bill in 2013 that tied interest rates to Treasury rates. So now, instead of 6.8%, you're paying 3.6% plus the 10-year treasury rate at the time the loan is made (with a cap at 9.5%), which is currently a total of 6.08%. Direct PLUS loans are down from 7.9% to 7.08% (4.6% plus the 10-year treasury rate.)
Student Loan Refinancing Rates
Perhaps the biggest difference between coming out of school in 2003 like me and coming out in 2010 or so, is the issue with refinancing rates. My classmates refinanced their medical school loans at rates as low as 0.9% after graduation in 2003. That's about as close to free money as you'll ever get. In 2010 you could still consolidate your government student loans, but when you do that they simply take an average of all your loan rates, rather than giving you a lower rate. It's nice to consolidate I suppose, but it doesn't save you any interest.
New Medical School Loan Refinancing Options for 2020
It's kind of funny to look back at this section of the post. When I wrote it back in 2013, the “new lenders” were SoFi (now the big kid on the block and one of the oldest refinancing companies) and DRB (which rebranded a while back as Laurel Road). At the time I wrote, “I hope to see more competition in this financial marketplace, but it's possible that both of these companies will just go away. Neither of them is exactly a household name.”
Now many of these companies are household names and it doesn't look like they're going anywhere any time soon. Rather than being the new kid on the block, SoFi and Laurel Road are now the trusted old blue chips. In fact, there are now half a dozen or so other options that are helping hundreds of white coat investors refinance their loans.
Each student loan refinancing company is unique, but the bottom line is that you should apply with several of them and, assuming the service you receive is adequate, take the one that offers you the lowest rate. In order to sweeten the deal, I've arranged with each company to give you cash back ($200-1000) if you refinance medical school loans through the links on this page.
SoFi – These guys refinance more loans than anyone else. The company has seen a lot of changes over the years, but now they have a whole plethora of financial products including investing, mortgages, neo banking, personal loans, etc.
Laurel Road– Despite the name change, I've been partnering with them for longer than any company on this site. They work hard to make sure you are eligible for their best offer that you qualify for.
Earnest– One of the big four lenders as far as volume, people like the fact that you can really personalize your loan terms, picking the term, variability, and interest rate until you find an option that works for you.
Splash– Plagued by higher interest rates for many borrowers for a few years, in late 2019 they became very competitive rate-wise and now lots of white coat investors are using them every month.
Credible– Their claim to fame is that they are the Orbitz or Kayak of student loan refinancing. With one application, they shop you around to multiple lenders (although many of those on this page aren't on their site).
LendKey– LendKey uses hundreds of great credit unions like Navy Federal to find you the best deal.
ELFI– These guys are known for low rates and low minimum amounts (they will refinance as little as $15,000) and high (i.e. no) maximum amounts. They will also refinance parent loans.
Brazos– They only lend in Texas, but if you're in Texas, might as well include them in your search. They will refinance as little as $10,000.
Reset Refinance – They are a nationwide nonprofit student loan lender with loans originated and serviced for the life of the loan at their one Iowa service center. Also have a loan for medical and dental residents that requires only $75 monthly payments during your residency or fellowship.
All of these companies have been great partners helping white coat investors save interest, get cash back, and enjoy better customer service than the federal loan servicing companies ever provided.
Reasons Not To Refinance Student Loans
Remember that when you refinance your medical school loans, they are no longer eligible for the Income-Driven Repayment programs (lower payments with a taxable forgiveness option after 20-25 years) or the PSLF program (tax-free forgiveness after 10 years). So don't refinance federal loans until you're absolutely sure you won't be going for loan forgiveness.
If your effective rate under REPAYE is lower than the rate you can refinance to, you probably shouldn't refinance either, although you might be able to lower your payments thanks to some great resident programs.
Here are my recommendations on refinancing vs REPAYE:
- If you have private loans, refinance them now as long as the rate you can refinance to is lower than what you now have.
- If you are going for PSLF and are single or part of a single-earner family, use REPAYE until you finish training then switch to PAYE.
- If you are going for PSLF and part of a dual-earner family, get some professional advice about your student loans.
- If you anticipate refinancing your public loans after residency, weigh your effective rate under REPAYE against the rate you can refinance to and take the lower one.
The Mortgage Option
One of my favorite student loan refinancing options involves a mortgage. If you can somehow turn a high-interest, non-dischargeable in bankruptcy, non-deductible (for most attendings) student loan into a low-interest, dischargeable, deductible mortgage that can be a great deal. I suppose, however, it does increase your risk of losing your home. [With the new tax laws HELOC interest is only deductible when used to purchase or upgrade a home, so it really doesn't work for this use anymore. – ed]
Unfortunately, those who have big fat student loans don't generally have any home equity, and by the time you get some, the student loans may be gone. But given how much homes have appreciated the last few years, this may be an option for some.
But if student loan refinancing is right for you, get off your duff and get this important financial chore done, then get busy living like a resident to pay them off. Even if you have already refinanced, you can do so again (and if you go to a different company, you can even get another cash back bonus). There is no break-even period since there is no cost to you to refinance.
What do you think? Have you refinanced your student loans? How? Who did you use? Are you happy with it? Comment below!