If you’re in medical school, chances are you’ll accumulate six figures in student debt before you earn a dime in your new career.
And for several years after school, you’ll be working a medical residency that pays far less than you’ll earn as a full physician—the average is around $51,000-$60,000 per year. Meanwhile, your student loan debt is hanging above your head.
You’ll spend as many as eight years in school—between your undergraduate and medical school training—and an additional three to 10 years in residency, depending on your specialty, before you can start making a dent in those monster loans.
How do you deal with your debt until then? A lot of med students put their loans into deferment or forbearance. The problem with this approach is that your loans accumulate interest during that time—a process known as capitalization—which can add another five or six figures to your debt.
Refinancing is another option. Under refinancing, you replace your multitude of loans with a new single loan—ideally at a lower interest rate. This approach has its pros and cons as well. Here’s a look at how it breaks down.
What are the benefits of refinancing during residency?
The biggest benefit of refinancing during your residency is getting a lower interest rate and better payment terms.
If you have federal loans for med school, chances are they’re either Direct PLUS Loans for graduate or professional students or unsubsidized Stafford Loans. PLUS Loans carry an interest rate of 7% as of 2018, while the Stafford Loans have a rate of 4.45%.
Some medical students also qualify for Perkins Loans, which carry a 5% fixed interest rate.
Some of these loans are a better deal than others, but there’s room to improve all around. Private lenders offer significantly better interest rates on the low end—as low as 2.5%—and that could save you tens of thousands, or more, over the life of your loan.
Unlike the government, private lenders determine your interest rate based on your credit and finances. While every private lender is different, they all have a compelling reason to offer you a good interest rate: as a doctor you’re likely to earn a six-figure paycheck, eventually. You're a relatively safe bet for lending.
Refinancing can also reduce your monthly payment to a manageable level. If you extend the repayment period of your loan while you’re in residency, you could set your monthly payment to a bearable amount—and get a head start on paying off your loans.
You’ll still pay more interest over the long term, but you can step up your payments once you earn more—a reputable lender won’t charge you a penalty for early repayment. And while you’re in medical school or residency, you can keep your loans from ballooning.
What are the drawbacks?
The big drawback on refinancing your med school loans is that, if you have federal loans, you'll lose government perks and protections when you refinance.That's why it's important to consider whether you intend on using any of these benefits.
When you refinance, you're replacing your old loan or loans with a new one. The federal loans go away, and a private loan takes its place. You lose your access to programs such as income-driven repayment and student loan forgiveness.
Student loan forgiveness can be a particular sticking point for some medical students—especially if you plan to work in a high-needs area.
While Public Service Loan Forgiveness will forgive your loan after 120 qualifying payments—which takes about 10 years for most people—there are some forgiveness programs for physicians will forgive your loans in as little as two.
However, some of these programs—such as the National Health Service Corps Students to Service Loan Repayment Program—will forgive both private and federal loans.
So if you’re considering refinancing but don’t want to lose forgiveness benefits, it pays to do your research and find out which programs you still qualify for—and how that fits into your career plans.
How much money could you save by refinancing?
Let's delve into the numbers a little.
Suppose you have a GradPLUS loan for $120,000, and you’re at the beginning of a three-year residency program. You’re considering putting the loan in deferment. At a 7% interest rate, that loan will accumulate $25,200 just in those three years. Worse, that money will be added to your loan principal at the end of your deferment period, meaning that you'll be charged interest on interest.
So, let’s say you refinance and score a 3% interest rate. That immediately cuts your interest over those three years to $10,800—saving you somewhere in the neighborhood of $14,400 in just three years, and even more money beyond that.
What about monthly payments?
With a six-figure student loan balance and a resident's income, monthly payments may be your chief concern.
That's why several student loan refinancing lenders offer special deals for people with medical school debt. In fact, there are several programs for doctors that will allow you to refinance to a lower interest rate AND reduce payment amounts during your residency.
Who are the best lenders for medical student loan refinancing?
We’ve got our eye on three lenders who specialize in exactly your situation. They are:
SoFi is perhaps best known for the way it supports its members, through perks such as career counseling, bi-coastal networking events, and seed funding opportunities for budding entrepreneurs.
But it also offers a specialized program for med students. This program lets you make a minimum payment of as little as $100 per month up until the end of your fellowship or residency, up to 54 months. SoFi’s interest rates are as follows:
- Fixed-rate loans: 3.899%-8.024% APR (as of March 2019)
- Variable-rate loans: 2.560%-7.295% APR (as of March 2019)
SoFi will also knock 0.25% off your interest if you sign up for AutoPay. There are no origination fees or prepayment penalties, so you can start paying off your loan more aggressively once you earn more. You can pay it off in five, seven, ten, 15, or 20 years.
To qualify, you have to meet the following criteria:
- You’re a matched medical resident or fellow with up to 4 years to go in your program.
- You have more than $10,000 in student loans.
- You graduated from a Title IV accredited university.
- You meet SoFi’s basic lending requirements.
Learn more about refinancing with SoFi.
Laurel Road also offers a dedicated refinancing program for med students. As with SoFi, they’ll let you make minimum payments of $100 while you’re in school—and even for up to six months after you’re done with your residency or fellowship.
For medical students, Laurel Road offers terms of seven, 10, 15, and 20 years. Interest rates are as follows:
- Fixed-rate loans: 3.50%-7.02% APR (as of April 2018)
- Variable-rate loans: 2.50%-6.65% APR (as of April 2018)
Laurel Road also offers the 0.25% AutoPay discount.
If your student loans are already in an in-school deferment program or grace period, Laurel Road will honor those periods—and won’t require you to start making payments until your deferment or grace period has ended.
Like with SoFi, Laurel Road doesn't charge origination and prepayment penalties. In addition to that, they offer economic support for those who qualify—for a period of up to one year.
You can refinance up to $500,000 with Laurel Road. Qualification criteria include:
- US citizenship or permanent residency status.
- Graduation from a Title-IV accredited school.
- Meeting Laurel Road’s financial requirements for refinancing.
Learn more about refinancing with Laurel Road.
Another lender that offers a program for medical school graduates is Splash Financial. Because it's hard to manage student loan debt while doing a medical residency or fellowship, Splash allows borrowers to pay just $1 per month during their training, reducing loan payments by $3,000 to $6,000 each year during that time.
Here’s what you need to know:
- You can refinance amounts anywhere from $7,500 to $300,000.
- Low fixed interest rates are between 3.75% and 6.69% (as of April 2018).
- Loan terms range from three to 20 years, offering you maximum flexibility.
- While completing a medical residency or fellowship, borrowers can pay just $1 per month for up to 84 months during training. This essentially defers payment during your training.
In addition to meeting Splash's usual loan requirements, you must have already started your residency or fellowship when you apply for refinancing. There are no application, origination, or pre-payment fees.
Learn more about refinancing with Splash Financial.
What's best for you?
If you’re in medical school, you don’t have to put your student loans in forbearance or deferment. You can refinance them and keep making payments—and save big over the long term. This option isn’t perfect for everyone—definitely do your research first—but it might just be right for you.
How much could you really save by refinancing? Find out.