Student Loan Refinancing Guide

Doctors often accumulate multiple loans from both private and federal loan programs to fund their medical schooling. Student loan refinancing is when you seek out a private lender to replace those loans with a brand new loan at a new interest rate and terms. Refinancing is free, can be done over and over, and can save you a lot of money by lowering your interest rate.

Student loan refinancing is NOT the same thing as a Federal Direct Consolidation Loan. Consolidation is the process of combining multiple federal student loans into one federal loan.

Benefits of Refinancing Your Medical School Loans

En route to debt elimination, most professionals should take advantage of the ability to refinance their debt with a private company. It is usually a no-brainer (assuming loan forgiveness is not an option), because you can lower your monthly payment and the amount of money you owe over the life of the loan, in addition to paying it off quicker.

Eliminating your student loan debt at the beginning of your career will increase your happiness and speed your way to financial freedom, allowing you to take advantage of future opportunities, both professional and personal.

You Save a Ton of Interest

If you have $300,000 in student loans at an average rate of 7% and refinance that to 2.5%, you will spend $13,500 less in interest in the first year alone. That is $13,500 that can go toward principal instead of interest. The same monthly payment that would pay off a 7% loan in 20 years pays off a 2.5% loan in less than 10 years. A 10-year loan becomes a 6-1/2-year loan. A 5-year loan goes away in less than 4.

You Get Cash Back Now

As if saving tens of thousands of dollars in interest isn't enough, as a little extra icing on the cake WCI has negotiated a special deal for you with each of the main refinancing companies! When you refinance, you get some money back (and you help support this site). If you're smart, you'll throw those dollars saved into paying off your loans.

You Get Better Service

No company is ever perfect, but compared to the service you were getting from your federal loan servicer, these guys might seem like it. You can get people on the phone, a functioning website, and can easily make extra payments to pay your loans off even faster.

You Get a Quick and Easy Way to Make Money

When refinancing companies first showed up in 2013, there were lots of kinks to work out. Well, they've all been worked out. Now you can get a preliminary quote from most of them online in 5 minutes or less.

If you have all of your loan paperwork handy, you can usually upload it electronically in a few more minutes. Once you've gathered the paperwork to refinance with one lender, checking your rate with a couple of others is no big deal either (and I recommend you do so).

I don't know how long it takes you to make $13,500, but I guarantee refinancing your loans will take less time, especially since it is all after-tax money.

Do I Have Any High-Rate Student Loans That Aren't Federal Loans?

These include any private medical school loans you may have taken out. Those aren't eligible for the RePAYE interest subsidy and not eligible for PSLF, so you might as well refinance them if you can get a lower rate (which you usually can).

Am I Sure I Will NOT Be Going for Public Service Loan Forgiveness (PSLF)?

PSLF is a program where any remaining direct federal student loans are forgiven tax-free after you make 120 on-time monthly payments in a qualifying program while working full-time for a qualifying employer.

If you're absolutely positive that working at a 501(c)(3) and going for PSLF is not in your future, then you can consider refinancing federal loans. If you're not sure, don't refinance!!

Refinance or PSLF?

• If you're sure you won't work at a 501(c)(3) and going for PSLF is NOT in your future  →  Refinance
• If there's a chance you will work at a 501(c)(3)  →  Don't Refinance
• Debt-to-income ratio of 1.25 or lower  →  Refinance
• Debt-to-income ratio of 1.25 – 2, run the numbers on refinancing vs PSLF. The longer your training (residency, fellowship, internship), the better PSLF is.
• Debt-to-income ratio of 2 or higher  →  PSLF
• Weigh the risk of not being awarded PSLF
• Decide on PAYE vs REPAYE
• If deciding between PAYE and IBR (Income-Based Repayment)  →  Choose PAYE
• If heavily indebted and unable to work at a 501(c)(3)  →  Consider REPAYE/PAYE

You can learn more about PSLF vs refinancing by reading Refinance and Pay off or Go for PSLF. If you're needing help understanding federal student loan programs like PSLF, PAYE, REPAYE, IBR, IDR, etc, you'll want to also familiarize yourself with our Ultimate Guide to Student Loan Debt Management.  If you don't want to wade through blog posts and DIY your student loan management, set up an appointment with one of our consultants at StudentLoanAdvice.com. You'll have an experienced professional to answer your questions and guide you through your best options.

If you're not going for PSLF, then refinance today! With companies out there offering 0% for 6 months and cashback bonuses, it really makes the decision easy.

What Is the Effective Rate of My Federal Loans Under RePAYE?

This will differ for everyone, but if you are a married resident with kids and have a stay-at-home partner, your effective rate could be as low as half of your loan interest rate. If you are married (and filing Married Filing Jointly) with your orthopedic surgeon partner, it is likely equal to your loan interest rate. Everyone else will be somewhere in between. So log in to the federal system and figure out what your RePAYE payment will be. (While you're at it, enroll in RePAYE ASAP—even before your graduate med school.) Once you know your payment, you can calculate your effective interest rate.

If your RePAYE payment is $200, and you have $200K in loans at 6%, then your monthly interest charge is 6%*$200,000/12 = $1000 per month. So essentially, you pay $200 a month, $400 a month gets added to the loan balance, and $400 a month is forgiven. Your effective interest rate equals:

6% * ($200 + $400)/$1000 = 3.6%

Bear in mind that this effective rate is likely to change every year of your training along with your RePAYE payment as your income fluctuates.

What Rate Can You Get from Student Loan Refinance Companies? 

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 with the best cashback bonus.

Check Your Refinance Rates

Student Loan Refinance Requirements

Lenders take many factors into consideration including your:

• Income
• Job History
• Savings
• Credit Score
• Debt

The better you are in each of these categories, the better the rate you will generally receive.

Private practice physicians who refinance often have a combination of these factors:

• Household debt-to-income ratios below 1.5
• A spouse that could NOT benefit from PSLF
• Smaller family size
• Desire to reach financial independence from medicine as fast as possible
• A spouse that earns a lot of money but who also has a minimal amount of debt

Can You Refinance Federal Student Loans?

Yes, you can refinance federal student loans, but should you refinance them? With the federal student loan interest rate at 0% since March 2020, many borrowers have held off refinancing federal student loans. 0% is obviously a great deal but this federal loan interest moratorium is due to expire on September 30, 2021, and supposedly, interest rates will go back to normal. Uncertainty remains, however, surrounding what the Biden Administration will actually do come Summer's end. Should you refinance now or continue to hold off?

There is one way you can refinance today, lock in a low long-term interest rate, AND still keep a 0% rate in the short term. Common Bond is offering 0% for 6 months when you refinance at least one federal loan. That's an even better deal than the government and a huge reason to consider refinancing today. 

Are there key considerations when moving from federal to private loans? 

Yes. The government offers very real, very legitimate benefits, such as:

1. Loan forgiveness
2. Repayment programs
3. Longer forbearance and deferment periods
4. More generous loan discharge if you pass away or become totally or permanently disabled before loans are paid off or forgiven

When moving from a federal to a private loan, you’ll lose some benefits. If you’re going to lose federal benefits, you better get the best deal.

A couple of disadvantages of moving to private loans include:

1. Less flexible repayment options
2. High payments in early career years when income tends to be lower (except the small payments offered in residency)
3. Inability to convert private loans to federal loans
4. Private loans tend to have shorter forbearance periods that are commonly limited to a year, while federal loans have longer deferments and forbearances available to borrowers
5. Death and disability discharges are less common
6. Private loans don’t offer nearly as many loan forgiveness programs

Can You Refinance Private Student Loans?

Yes, always shop for better interest rates on your student loans! Refinancing rates are historically low, so if you have private student loans and are not going for PSLF or getting a REPAYE subsidy, it is worth it to see if you can save even more money by refinancing those again.

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 refinanced previously, you can do so again and should whenever rates drop (and if you go through a different company, you can even get another cashback bonus). There is no break-even period since there is no cost to you to refinance, so keep refinancing over and over until you have obliterated those student loans! 

Compare Your Rates and Get Cash Back

Can You Refinance Medical School Loans Multiple Times?

Perhaps you didn't get the best rate when you refinanced due to your credit score. Or perhaps interest rates have dropped. Or now you qualify for a 5-year term or you decide to change to a variable rate loan. There is absolutely nothing stopping you from refinancing again.

In fact, it's probably a lot easier since you now only have one loan to enter the information for. And yes, you get the bonus money every time you do it. In fact, probably even the refinancing companies like it when you do this. They've already sold your previous loan off to investors. Doing it all again means more business for them.

See How Much You Can Save

Can You Refinance Subsidized Student Loans?

Yes. But, remember subsidized loans will not accrue interest while you’re enrolled in school. Once they are converted to private student loans they will likely begin to accrue interest.

Do You Have to Refinance All Student Loans?

No, you can refinance one or all of your loans.

Can You Refinance Your Student Loans While in Your Residency?

It depends. Some refinancers will work with you while you’re in residency. Others wait until you’re an attending.

Can You Refinance Your Federal and Private Loans Together into One loan?

Yes. Private loan servicers can consolidate all your federal and private loans together. They can even consolidate your partner’s student loans with yours into one loan.

Refinancing and paying down your med school debt in less than 10 years (and preferably less than 5) can be a wonderful way to race to financial freedom. Once you’ve refinanced, however, you can’t go back. The refinancing decision warrants an abundance of caution if you have a combination of these characteristics:

• Potential that you might go for PSLF (obvious)
• Large family size
• Household debt-to-income ratio above 1.0 – 1.5, with no expectation that you’ll hit this level within 5 years (ie you earn $200,000 but have more than $300,000 of debt)
• Physicians who would like to go part-time or work less for family reasons
• Some physicians married to higher earners that also have large students loans
• Spouse with low or no income

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.

Recommendations on Refinancing vs REPAYE

1. If you have private loans, refinance them now as long as the rate you can refinance to is lower than what you now have.
2. 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. Don’t forget about your interest capitalization when switching repayment plans.
3. If you are going for PSLF and are part of a dual-earner family, get some professional advice about your student loans.
4. If you anticipate refinancing your federal loans after residency, weigh your effective rate under REPAYE against the rate you can refinance to and take the lower one.

For many borrowers, refinancing is an easy decision. For others, it is important to be sure that it will not have a negative impact on future plans. Weigh your decision by examining these pros and cons:

Although these terms are often lumped together, they are very different things and both require your consideration.

Consolidation is the process of combining multiple federal student loans into one federal loan.

Student loan refinancing is when you seek out a private lender to replace federal or private loans with a brand new loan at a new interest rate and terms.

It’s best to make the decision to consolidate or private refinance at the end of medical school.

Look to private refinance your student loans when:

1. You’ve graduated and aren’t pursuing loan forgiveness
2. Can obtain a private refinance rate lower than the effective interest rate after your REPAYE subsidy is applied

Medical School Loans During Residency

If You Will Go for PSLF

If you are going for PSLF, then, if at all possible, stick with PAYE. If this is not possible, choose carefully between IBR and REPAYE based on your expected salary and how much more you'll have to pay as an attending under REPAYE. If utilizing IBR, be sure to consider the resident cash flow issue you will have with IBR.

If You Are Unsure About PSLF

If you are not yet sure about PSLF, then, if at all possible, stick with PAYE. Otherwise, run the numbers with reasonable assumptions and take your best guess between IBR and REPAYE.

• REPAYE is probably the better way to decrease interest accumulation if you're leaning toward paying the loans off.
• IBR/PAYE may be a better option if you have a high-earning spouse, because you can file your taxes separately and separate your high-earning spouse’s income from your student loan payment calculation.

If You Will Not Go for PSLF

If you are sure you're not going for PSLF, then get refinancing quotes ASAP from the recommended private refinancing list and compare them to your effective interest rate under REPAYE. Go with the lower rate, realizing that the variable rate may be the best deal, even with the additional risk.

Recommended Reading: A Step-By-Step Guide to Refinancing Your Student Loans During Residency

By refinancing your medical school loans you can save tens of thousands of dollars over the life of the loan, in addition to lowering monthly payments.

Are you still asking yourself if it is worth it to refinance student loans? Not only can you save money by refinancing through our partners, but we’ve also negotiated to get you cash back when you refinance through one of our links. And we’ll throw in our flagship FYFA course ($799 value) at no additional cost if you private refinance at least $100K using our links.

See How Much You Can Save

Which Student Loan Term Is the Best Deal?

If you want the lowest rate possible (sub 3%) that means you're going to have to commit to a variable 5-year term and run the interest rate risk yourself. That means if interest rates go up dramatically soon, you may end up paying more in interest than if you had taken a fixed-rate loan.

However, I think that is a risk worth running for anyone willing to commit to living like a resident for 2-5 years until the loans are gone. If rates only rise a little, or rise slowly, or don't rise for a few years (or at all) you're going to come out ahead. Once you run the numbers on just how much and how quickly rates have to rise for you to lose this bet, you will likely be much more comfortable with it.

Also, if you're committed to living like a resident and getting out of debt quickly, you likely have A LOT of slack in your budget and can easily cover the worst-case scenario. Plus, you now have a little more motivation to live efficiently and get out of debt. A variable rate loan not only gives you a mathematical tailwind to speed you to financial independence but a behavioral one as well.

Step 1

Request quotes from a few of the companies on our recommended list. Initial applications won’t hurt your credit score (soft credit check) and it’s quick and easy.

Step 2

Compare each of the quotes.

Step 3

Determine how much you plan to pay each month toward your loans.

Step 4

Select the lender that provided the lowest interest rate and shortest repayment length that you can afford.

Step 5

Proceed through the application with the selected lender.

This process should be simple and only take a few weeks.

You don’t need to go it alone! Navigating complicated and ever-changing student loan programs when such large numbers are at stake is a daunting DIY project, to say the least. That's why we created StudentLoanAdvice.com, a White Coat Investor company created to help doctors, dentists, and other high earners tackle and defeat their student debt. Contact our experienced team lead by Andrew Paulson, CSLP, to review your student loan situation, run the numbers and strategies available to you, and help you come up with an optimized plan. Get the personalized answers you need for one flat fee. You can do this and we can help!

Book an Appointment With Andrew at StudentLoanAdvice.com Today!

In IDR, married borrowers can generally reduce their student loan payments by separating their income and filing taxes Married Filing Separately. After loans are refinanced, however, monthly payments towards your now private student loans are based on the loan size, interest rate, and term, instead of your income. Filing separately will no longer have the potential to reduce your payments. If you are married you'll want to file your taxes in the most advantageous way for your situation which is likely married filing jointly.