By Splash Financial, A Platinum-level WCI Medical School Scholarship Sponsor
After reading this article, we hope you’ll be prepared with the confidence and knowledge to get the best deal on refinancing student loans. As experts, we’re pulling back the curtain and providing inside information on what to look for when refinancing – and at the same time, we’re sharing insight into the student loan refinancing process here at Splash. Let’s get started!
But first, congrats! After years (and we mean years!) of devoting yourself to undergrad, med school, and possibly even residency or fellowship (you may still be going through this *sigh*), you can finally breathe again and live like a normal person – an all-powerful attending, that is. Unfortunately, you may still have student loans weighing you down.
If you’re like most people, you want to put your student loans behind you as fast as possible, but you need a step-by-step guide on what to look out for. Lucky for you, that’s exactly what Splash has put together.
Top 6 Tips for Refinancing Your Student Loans
#1 Interest Rate
Risk
You probably know this already, but your interest rate is the lever that controls how much your student loan costs you over time. The higher the rate, the more you pay. When you took out your loans, you were a greater risk to lenders – but that was before you got into residency. Actually, that was before you had even graduated from medical school! As a resident, you're now viewed as a lesser risk and lenders will likely offer you a lower refinancing rate reflecting that fact. Refinancing after graduation is a simple way to possibly save you a lot of money.
When you refinance your medical school student loans, you are replacing your existing loans with one new loan that has a lower interest rate. For example, if you have $200,000 in loans with an average interest rate of 7%, you’ll pay drastically less if you refinance to a $200,000 loan at a 5% interest rate.
Ok – refinancing student loans replaces the loan with a new interest rate, but you might be wondering how that new rate is even calculated. How do these refinance lenders, such as Splash Financial, determine your risk level? It varies, but most lenders fall back on two main areas of evaluation:
- Lenders will look at your credit score and history of responsibly paying your bills.
- They will also look at your debt compared to how much you make in income – essentially, the likelihood of you being able to repay the loan.
A higher credit score and better debt-to-income ratio will earn you a lower interest rate.
Federal Reserve
Rates also depend on external factors, such as the Federal Reserve. When the government increases its Fed funds rate, overall rates within the lending market increase. It costs lenders more to access capital, and those higher rates are passed on to you. On the other hand, when the government decreases the Fed funds rate, you might see lower rate offers. Most economists think we are going to see a few rate reductions over the next 12 months. In fact, you can even track the probability according to economists.
So, if you received a good rate in the past or have already refinanced, your financial situation or the external market environment could have changed to help you get an even better rate and save more money. It may be worthwhile to take another look at refinancing.
#2 An Interest Rate Secret (yes, more on interest rate)
You get it – interest rate is important, but we want to share a secret about the typical lender’s rate offer. Whether it’s on the phone or on your computer, many people think an actual person calculates an offer for you, but the reality is, it’s nearly all digital and based on internal algorithms that determine risk. When you check your rate with a normal lender, they plug your information into their one and only algorithm or formula and spit out an offer. What makes one lender different from another is that unique algorithm. It’s why rates are almost never the same across lenders.
But here at Splash, we approach this process differently. When you check your rate on our site, which takes less than 3 minutes, we instantly analyze the rate you would get with multiple lending partners – running multiple unique pricing engines to find you a great deal. By bringing back the best rate, we save you time and point you towards your greatest potential savings.
#3 Loan Term & Total Savings of Refinancing Student Loans
Most student loan refinancing lenders offer a range of loan terms which allows you to choose how long you have to pay it back – often in 5, 7, 10, 15 or 20 years. As you make your decision, it’s important to consider your monthly payment at each term. If you are paying back $100,000 over 5 years vs 10 years, you can anticipate your payment to be double – make sure you can afford it.
People ask us this all the time: should I take out a 10-year loan or a 5-year loan? The answer really depends on how close the interest rate offers are. For example, if the rates are identical, we’d suggest you take out a 10-year loan and pay more than your required monthly payment. That way, you have the flexibility of a lower payment if something comes up, but you can still pay it off in 5 years if you want. Which leads us to prepayment fees, the fourth thing on our list.
#4 ZERO Fees
Look for no origination fees, no application fees, and no prepayment fees. No matter which loan term you choose, you shouldn’t be penalized for making extra payments or increasing the amount of your payments. At this point, the absence of fees is mainstream in the industry – but make sure to read the fine print. Lenders are required to disclose fees rather than hide them, so just be on the lookout when refinancing student loans.
#5 How Easy is the Process?
You’re busy, we get it – but does every lender understand that? Consider your initial experience as a sneak peek into how easy the process is going to be. How much work did it take to get a rate quote? Is the design clean and intuitive? Was there any email communication related to what you’re looking for?
Of course, a lender with a great, low rate will go a long way to cover for a really difficult application process but given the time limitations most doctors have, you probably want to at least know upfront that it’s going to be a tough process. Use the initial rate check as an overall determination of how easy the entire process will be.
Splash has invested heavily to improve the overall customer experience and has made a lot of progress over the last two years. In 2019, we were named one of the Top Student Loan Refinancing Companies for Customer Service by NerdWallet. But honestly, when residents completed the first iteration of our application, we marveled that they got through so quickly or even at all (it lacked automation and the design resembled something from 1995 – not to be too brutal on ourselves)! Now our application is clean, intuitive, and automated in many parts – but many lenders haven’t made those investments. Keeping tabs on whether or not you’re happy with your experience may help save you from a lender who’s stuck in the stone age.
#6 Bonus
From referral to limited-time offers, many student loan refinancing lenders provide the opportunity to cash in on bonus promotions. In fact, White Coat Investor negotiates fantastic offers for doctors! Take note of the offers available to you and if they’re paid out in cash, like the bonuses Splash offers. While you should report all bonuses as income to the IRS, realize that offers over $599 require the lender to issue you a 1099 form.
It’s fun to get excited about a bonus but be careful to stay focused on what really matters – paying less in the long run on your student loans! Choosing a company with a high refinancing rate for its $300 bonus probably isn’t worth it. Going with the company with the lower rate will likely save you more.
#7 Lost Government Benefits — PSLF (yes, the title says 6 but we want to discuss an important topic)
This isn’t really something to look out for, but it’s a big topic that people are concerned about. The government benefits that really matter for doctors are Public Service Loan Forgiveness (PSLF), Income-Based Repayment, and forgiveness in the event of total and permanent disability. When you refinance student loans, you lose ALL of these benefits, but you may also gain new ones. Normally, lenders have some forbearance policy if you were to lose your job. Some offer forgiveness for death and disability. None offer PSLF.
These benefits can sometimes paralyze a person from making a choice, even if they aren’t applicable.
Here’s a simple way to think about it – if you’re in private practice, you should refinance student loans. Actually, if you’re in any hospital or group that is not a 501c3 organization, you should refinance, assuming you can get a lower rate. Regardless of the place you work, if you have private student loans, you should refinance those loans. You don’t receive government benefits when you have private loans.
If you work in a non-profit hospital and are pursuing PSLF, your best option depends on your situation. It may be worthwhile to approach a financial advisor with questions or research more online. For example, certain income-based repayment programs will base your monthly payment on joint household income. That means that if you’re married and your spouse doesn’t have loans, you may repay your loan prior to any forgiveness. There are ways around this problem, such as filing taxes separately, but we bring it up to make the point that it’s not one-size-fits-all. Also, anyone who was on deferment rather than making a payment during residency should probably refinance – we’re really sorry to tell you but those “non-payments” don’t count towards your 120 required payments for PSLF. Regardless, if you do have questions about PSLF, it may be smart to consult a financial advisor.
Information overload? Maybe. But we hope it’s prepared you to make the best refinancing decision for you! If you have any questions about the insights we shared or about how Splash can help you, give us a call at 1-800-349-3938.
Splash Financial is a leading, online platform that helps medical professionals to refinance their student loans and reach financial freedom. With a new, low-interest rate, you could save thousands off your total loan cost. In under 3 minutes, you can quickly check your rate for free (without affecting your credit score!). Plus, Splash offers the ability to refinance on your own, with a cosigner, or even with a spouse – and never charges any application, origination or prepayment fees. Splash also offers a resident and fellow program that allows you to pay a significantly reduced monthly payment while in training. Find out how much you can save today!
What is your experience refinancing student loans? Was it an easy process? What could have made it easier? Comment below!
[Editor's Note: This is one of five sponsored posts from our 2019 Platinum-level ($7500+) sponsors of the WCI Medical School Scholarship. Splash is a long-time partner of The White Coat Investor and has helped thousands of readers refinance their loans with great service and rates. Thank you for supporting those who support this site and especially the scholarship. 100% of proceeds go to the scholarship winners.]
I just recently refinanced with splash and found it difficult to find death benefits either in the website or the disclosures. From what I could tell my spouse would be on the hook for the loan if I died. It seems most other refinance companies had forgiveness built into their loans. It was almost a deal breaker but I’m fairly close to paying it off anyway. Just a heads up.
https://www.whitecoatinvestor.com/what-happens-to-your-refinanced-loan-in-the-event-of-death-or-disability/
The CEO of Splash told me:
Since Splash works with multiple lenders (banks and credit unions), it varies on how this policy is applied. Some forgive in the case of death and some do not. Without question, the best borrower benefit is to have the loan cancelled in the event of death or total and permanent disability but some of our lenders have instead opted for lower interest rates instead (forgiveness can cause lenders to factor extra losses in for everyone causing higher rates).
What is important is borrowers can view the specific policy for every lender Splash & others on WCI in the credit agreement which is the document that the borrower signs and contains all the legal terms and rights.
Here is a snippet from the credit agreement for one of our lenders that does not forgive a loan for death or disability. This language is likely exactly the same as other lenders who do not forgive.
Payment Due Notwithstanding Death or Disability If I die, the terms of this agreement will be binding on my estate, which will be liable for any unpaid indebtedness. I also understand that if I become totally and permanently disabled, my unpaid indebtedness on this loan will not be canceled.
I asked what percentage of the lenders Splash uses did not offer forgiveness:
Right now, the majority of loans are with lenders who do not forgive (I’d estimate 80% over the last year) but we are constantly working to both improve borrower benefits and maintain low interest rates.
Read the fine print and buy a little extra insurance if needed.
Quick question: WE refinanced down to 4.5% a few years ago. Still about 130K remaining. Credit scores, salaries, and debt to income ratios are all much better now than when we refinanced. So it’s probable that refinancing again could land us a better rate. However, we will likely be buying a house in the next 6 months, and don’t want to rock the boat too much regarding our credit scores, lest it adversely affect our mortgage rate. Any thoughts on this? Would better loan financing terms likely help our mortgage rate, or would the hard credit pull and refinance hurt us more?
Yes, it could rock the boat. Safest to wait, but it’ll cost you at least a few hundred.
FYI
I stumbled upon a rate match by accident. Sofi will match competitor rates with an official application from the competitor. My rate was previously at 4.5%. I received an offer from First republic bank for 3.5% which was advertised on this blog. First republic had some requirements I wasn’t particularly interested in like opening up checking account and savings with them and/or having 20% of loan in one of the accounts. Before completing the app w first republic I asked a customer service rep at Sofi if they would offer a rate match and they said yes. With auto pay I’m down to 3.25% on 10 year repayment
Good Luck
That was nice of them, especially since the two products are not equal. First Republic’s loan isn’t truly a student loan, it’s a personal loan with lots of requirements as you note. They must have really wanted your loan.
This is a very important and difficult topic. Especially private student loans that are the most crucial financial decision student make. The only thing that upsets is that students are not told such important information before they take out a loan. And then they call Dave Ramsey crying, it’s sad.
very interesting