This is a guest post from Connie Solidad who writes financial posts to help advertise ConsolidatedCredit.Org, a for-profit debt consolidation service. I have no financial relationship with her or that site.
Congratulations! You made it through medical school! You have worked your fingers to the bone, missed out on a lot of sleep, and probably survived, at least some of the time, on energy drinks and instant noodles. Now that you’re finished, you are most likely left with some serious student loans to deal with. While the cost of the education is probably well worth it, you still have to address the debt. If the payments that you make on a monthly basis are too much for you to handle, refinancing may be an option that you want to consider. In this situation, there are a few different refinancing options that you may want to pursue.
Keep in mind that all of these are just suggestions, and that detailed information on any of these options is beyond the scope of this article. What is important is to know that you have options. I recommend meeting with a financial advisor to evaluate your current financial situation, and discuss your specific situation. You can also get answers to many of your questions from the Federal Direct Consolidation Loan Program.
Student Loan Consolidation
One of the simplest options for you to consider is consolidating your student loans into a single package. If you have federal student loans, you should be able to consolidate those into a single loan. Federal education loans have had fixed rates since July 1, 2006. Since rates are fixed, federal loan consolidation cannot lower your interest rate, but it can still be helpful for two reasons. The first is that you can group all of your payments into one monthly payment, which is more convenient for many borrowers. You can also adjust the term of your loan, which can lower your payment. There is a downside to stretching out the term, however – when you stretch out a loan you pay more interest. Just keep that in mind as you decide what course to take.
Bank or Credit Union Refinance In some cases, you may be able to qualify for a refinance with a bank or credit union. With this option, you simply apply for a new loan at your local bank or credit union and they provide you with the money that you need. Once you get the loan, you use the money from it to pay off your medical student loans. Then you are left with just the new loan to deal with. In order to get a bank or credit union loan, you're going to need a good credit score, and a sufficient amount of income to qualify. As of this writing, I find three lenders who still offer loan consolidation – Chase, Student Loan Network, and Wells Fargo.
Home-Equity Loan Another option for you to consider is using a home-equity loan or home equity line of credit to get the money that you need to pay off your medical student loans. If you own a home, and it has some equity built up in it, then you should be able to borrow against it. With this approach, you'll need to continue making your regular mortgage payment, and then you will also have the home-equity loan payment every month. Beyond that, you won't have to worry about the student loan payments like you would normally.
Instead of getting a home-equity loan, you could also consider refinancing your existing mortgage. If your home has equity in it, this is another option that will sometimes be easier because you will only be left with a single mortgage payment. With this approach, you borrow the money from a new mortgage loan, use part of it to pay off your existing mortgage, and then use the rest to pay off your medical student loans.
Granted, most recent graduates do not own homes yet, but if it’s possible, the nice thing about using either the home-equity loan or the mortgage refinance option is that the interest you pay on the loan may be tax-deductible. If you had regular student loans, you could deduct the amount of interest that you pay each year [Unless you make more than 120K, like most doctor-ed]. If you switch to a home-equity loan or a mortgage, you'll still be able to maintain that tax-deductible benefit. This means that you will be able to save money on your monthly payments, and you won't have to give the savings back to the IRS.
Any of these options can work when you want to refinance your medical student loans. Do some shopping around, find the best interest rates, and then choose an option that fits your needs.
Editor's Note: One other option for “refinancing” student loans is to have the payments modified or even forgiven via the Income Based Repayment program or the Public Service Loan Forgiveness program. Remember that refinancing loans may make you ineligible for the IBR and PSLF programs. Have you refinanced student loans? How did you do it? Do you recommend it?