Why and when you should refinance your student loans.
When it comes to refinancing and managing your student loans as a new physician, you’re typically looking at two major phases: during your residency, and after your residency.
Both of those phases require balancing your hefty student debt with your life, but each one comes with its own specific nuances. For example, if you’re a resident, you know two things are true. You don’t have a whole lot of spare time to sit around figuring out how to manage your loans, and you’re also not making very much money, relatively speaking.
Then, once you’re done with your residency, all of a sudden you’re making a salary that’s more in line with the amount of debt you’re carrying, but with that comes more complex questions. Instead of just wondering how you’ll be able to afford your student loan payments, now you’re faced with making decisions about whether you should consolidate or refinance those loans.
And you probably don’t have all that much more time to sit down and think about it. That’s why I put together this guide to whether physicians should refinance their student loans, based on which stage of your career you’re in right now.
Residents
If you’re a resident, your main priorities should be surviving your residency, and making sure your loans don’t balloon out of control while you’re doing it. Since you likely aren’t making very much money, many of your loans may be eligible for low payments that don’t even cover the interest on your loans.
Your best bet during this time is to try as hard as you can to make sure that you’re at least paying the interest every month on your medical student loans. That way, when you finish your residency and your salary starts to go up, your loans haven’t gone way up in the interim.
Practicing Physicians
Now that you’re done your residency, you’re probably making decent money and you’re ready to tackle your loans.
You’re also probably being bombarded with marketing from your loan providers and financial services companies that are telling you to consolidate or refinance your loans. Before you do anything, it’s important to understand the difference between those two things.
Consolidating your loans means that instead of making five, ten or even fifteen different payments to cover each of your loans every month, you bring them all into one admittedly huge loan. You’ll have one payment every month, but it won’t change the interest rate you’re paying, since the new interest rate will be the weighted average of all of your previous loans. If you’re looking for convenience, this is a great option–but it won’t end up saving you money on your loan repayment, since the interest rate effectively stays the same.
Refinancing is where you can save a bundle on interest over the long term. When you refinance a loan, you’re typically shopping that debt around to see which financial services company will offer you the lowest interest rate on your debt, which is how you can save money on your payments now and every month going forward.
So should you refinance your medical student loans?
The first thing to consider in making this decision is whether your loans are federal loans or private loans, because the impact of refinancing each type of loan will be different.
Why and when you should refinance private loans
If you have medical student loans that are private – usually issued by a bank or a financial services company – it’s a no-brainer.
Physicians should refinance their private loans if it’s an option.
It’s a very low risk thing to refinance private loans, and you’re not losing any benefits by changing lenders to secure a better rate. If you’re a physician paying a high rate on your medical student loans, this is an easy decision: you should refinance them.
Why and when you should refinance federal loans
Things get a bit trickier when we look at your federal loans, however. These loans come with benefits like income-based repayment plans, that are designed to protect you if your circumstances change or your income goes down. Refinancing federal loans is riskier, because you’re giving up those benefits in exchange for a lower interest rate.
But as a physician, your situation might be such that it makes sense to refinance those federal loans anyway.
As you know, the career path of a physician tends to be more stable than most. Once you’re into your residency, and have chosen a specialty, you have a pretty clear idea of what your career progression and salary progression is going to look like, which makes it much easier to make decisions about the future.
Refinancing your loans is part of that, so if you’re at a hospital or in a program that you know is going to be stable for a long time? It can make sense for many physicians to refinance their federal loans, too.
Plus, most physicians will very quickly realize that as their salary goes up, it puts them outside of the scope of any loan forgiveness programs out there – so losing access to them isn’t the detriment it might be for other professionals.
Where should you refinance?
With all the talk of the benefits of federal loans, something that often gets overlooked is that some private lenders also offer good benefits if you have your student loans with them.
Specifically, I’ve worked with clients who have had tremendous experiences with SoFi and Earnest to refinance their medical student loan debt. Based on their experiences, it seems like both companies have taken some of the flexibility and safety nets of federal loans, and combined them with the lower rates most typically seen in private loans.
And if you’re wondering, no, I don’t get paid anything to recommend those options for physicians looking to refinance their student loan debt. That’s the benefit of truly impartial financial advice: I work one on one with my clients to figure out what they really need, and I’m free to recommend the service that’s the best fit for their situation.
It just so happens that I’ve seen both of those lenders save my clients money on their medical student loans, which is why I’m happy to recommend them.
If you’d like to book time to discuss your medical student loans, I’m happy to jump on the phone and talk through how you can best manage your debt as a physician. Whether you’re a resident or a seasoned pro, you know how valuable an unbiased, expert opinion can be, and I work with clients like you on a regular basis to provide it. If it’s time to get your portfolio on-track for financial success, schedule a call with me to start the discussion.