Doctors frequently use refinancing as a financial product and companies such as Earnest, SoFi, Laurel Road and Splash aggressively market this to residents and doctors. They promote extremely low rates and easy repayment. Ad campaigns are slick and competition is intense. Be careful though: refinancing at the wrong time when refinancing federal loans can cost tens of thousands in PSLF benefits. Correct refinancing saves tens of thousands in interest.
The One-Way Door
Physicians need to realize that refinancing federal loans into private ones means permanently leaving the federal system. You lose eligibility for Income Driven Repayment as well as for Public Service Loan Forgiveness Program. You also lose deferment and forbearance eligibility. If income falls due to sickness or market swings you will not be able to use IDR payments too. Later refinancing into federal loans is no longer possible either. So carefully consider this choice not just by looking at rates.
When Refinancing Makes Sense
If you work for a private company and have already ended PSLF, refinancing makes sense. You are a private practice or for-profit employed physician who has definitively ruled out PSLF. For example, if you work for an employer that does not qualify for PSLF and you do not intend to switch to one that does qualify, refinancing to a lower rate saves both interest and shortens payoff period or reduces monthly payments. That is huge benefit.
You have a low debt-to-income ratio and strong income. You have a low debt-to-income ratio and have a high income. For someone who makes $470,000 with $290,000 of debt and who comfortably pays off that debt and faces almost no risk of income interruption PSLF is not an option. Lowering the interest rate from 7% to 5% will save around $5800 a year.
You are an attending, not a resident. Refinancing makes sense only if you are sure your employer does not qualify for PSLF and you have not missed qualifying months for aid from student loans.
You have consolidated your loans and verified PSLF is not your path. If you consolidated loans and you have confirmed PSLF is not right for you, refinancing is sensible only if you are certain your employer does not qualify and you have missed no qualifying months for verification of aid from student loans.
When Refinancing Does Not Make Sense
You work at a nonprofit, academic center, VA, FQHC, or government employer. You work for a nonprofit, university, VA clinic, FQHC, or government. You also give up this benefit doctors get. Refinancing savings rarely exceed $150, 000 but forgiveness via PSLF exceeds this amount.
You are still in residency or fellowship. If you are still in residency or fellowship training pay from residency doesn't cover private loan payments anyway; you should use Income Driven Repayment (IDR) during training too. Refinance only when you are attending physician and know exactly what kind of employer you will work for.
Your employer status is uncertain. Employer status remains unclear; do not refinance if uncertain. Confirm eligibility for PSLF before accepting a job or signing a contract.
You have significant accumulated PSLF qualifying months. During residency and as new attending physician, if you have not yet made 36, 48 or 60 qualifying payments refinancing erases all savings you've achieved. Costs go up as you progress further.
What to Look for in a Refinancing Product
When considering refinancing consider these factors:
Interest rate. Interest rates: Fixed rates are generally better for longer terms and monthly payments are steady. Variable rates start low but can go up. Advisors recommend fixed for loans lasting more than seven years.
Loan term. Term Length: Loans with shorter terms (5 to 7 years) result in higher monthly payments but lower total interest. Longer terms (10 to 15 years) mean lower payments and higher total interest paid. Choose based on resources and affordability.
Physician-specific programs. Special programs also available from lenders for doctors: deferment during residency and graduated repayment plans from lenders such as Splash Financial, Earnest and Laurel Road.
Rate discounts. Discounts are standard at 0. 25 percent; other lenders also give additional discounts if you refinance multiple loans or have existing relationships.
The Interest Savings Math
Consider refinancing a $300,000 loan over ten years. At 7%, refinancing costs about $139, 000 in total interest; at 5. 5%, about $105, 000; and at 4. 5%, roughly $83, 000. Switching from 7% to 5. 5% saves roughly $34, 000 in interest; refinancing at 7% to 4. 5% saves nearly $56, 000. Savings are important but irrelevant if PSLF forgiveness is automatic.
The Bottom Line
Refinancing works best for physicians who practice on their own or for profit: they need clear repayment plans and a ratio of debt to income and they cannot use PSLF. Others such as those working for nonprofits or still in training face much higher risks compared to benefits. Consider this carefully. Use MedDebt to compare costs based on specialty and employer type before committing to a refinancing plan.
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