I’m still getting lots and lots of questions about what to do with your student loans. Although there are sometimes exceptions, it is helpful for borrowers, particularly medical school borrowers, to see the rules of thumb all mapped out in a helpful way. I had a slow night shift a few months ago, so I put together this flowchart which I’ll update if things change again (as they did in December 2015 with the institution of RePAYE.)
The Sweet Student Loan Management Flowchart
Pretty sweet huh. So start at the upper left, with medical school graduation. If you’re now an attending (or soon will be) you can start at the bottom left, with residency graduation.
Step 1 is to consolidate as much of your debt as possible into a federal loan program eligible for RePAYE and PSLF. Almost all residents will want to go into RePAYE with their federal loans. If you are eligible for PSLF (meaning you are employed by a non-profit throughout and after your training) you’ll want to take advantage of that with as much of your debt as possible.
Step 2 is to refinance all private loan debt and enter the RePAYE program (assuming you can make the payments) with your federal debt.
Step 3 is to refinance your private loans again (you should get a better rate upon residency graduation) and decide whether or not to go for PSLF. If not, refinance and get busy paying them off. If so, go into IBR or PAYE (which cap payments at a 10-year standard repayment- RePAYE does not.)
Step 4 is to live like a resident until the loans are gone. Even if you expect PSLF, live like a resident anyway until you save up enough money on the side that you can pay off the debt in case PSLF goes away (or is capped) and you aren’t grandfathered in.
The student loan refinancing landscape is constantly changing. New lenders seem to enter the market every month. There are now 20 or more total lenders in this space. Rates and terms change as they compete with each other. Occasionally, they run out of money to lend (it has to come from somewhere) and so either slow down their operations or stop taking new applications. The best way to avoid those issues is to simply apply with several different companies. If one is dragging their feet, you should still be able to get one or two others to offer you a rate. 95% of the work is gathering the papers for the first company. After that, it is easy to fill out an application for each company. Many of them will give you a rate estimate within minutes. Take the best rate you’re offered as terms are generally very similar (read the fine print of course.)
Of course, you need to remember that you don’t borrow your way out of debt. No matter how low your interest rate, these things aren’t going away unless you throw a ton of money at them. Control your lifestyle so you can get this monkey off your back within 2-5 years of graduation. Many WCI readers have done it in less than a year. Unless you are in a terrible loan situation (think dentist making $120K with $450K in loans), there’s really little excuse for a doc to have student loans for longer than 5 years. Free yourself so you can enjoy the good life. Just like the grass feels better when your house is paid off and your car sounds better when it is paid off, you’ll enjoy your job more when your student loans are paid off.
If you do decide to refinance some or all of your loans, I would appreciate it if you would use the links on the site. It is a significant source of revenue for us and I have negotiated a special deal with many of the companies for you that you cannot get by going to them directly. And yes, you can refinance multiple times at increasingly better rates as your financial situation improves. There is no “break-even period” since there is no cost to you to refinance.
Fixed 3.75% - 7.03%
Fixed 3.89% - 7.89%
Fixed 3.49% - 8.92%
Fixed 5.10% - 8.93%
Fixed 3.39% - 6.69%
Fixed 3.899% to 8.024%
Fixed 3.20% - 6.25%