5 Best Lenders to Refinance Vet School Loans of September 2020

Debt-to-income ratio for refinancing vet school loans

Student loan refinance lenders consider many factors when evaluating applicants, including their credit scores, financial history and debt-to-income ratio. Meeting a lender’s DTI requirements may be the biggest hurdle for some veterinarians — the average vet school debt is $183,014, yet veterinarian salaries start at an average of $76,633.

Refi lenders determine DTI by comparing your gross monthly income to your monthly debt obligations. Here’s how this would work for a veterinarian who owes $183,014 and earns $76,633:

• Her monthly loan payments would be $1,968 on a standard, 10-year repayment plan, assuming current federal student loan interest rates.

• Her gross monthly income would be $6,386.

• Her DTI would be 31% (1,968/6,386) — but that’s for student loan payments alone. Including rent, utilities and other obligations could easily push that number above 50%.

» MORE: Calculate your debt-to-income ratio

If you want to refinance veterinary school loans but can’t because of your DTI, finding someone to co-sign your loan could help. If you go this route, look for a refinance lender that offers a co-signer release program — not all do.

If your DTI is manageable, compare all refi options to ensure you get the best rate possible.

Should you refinance vet school loans?

With veterinary school costs typically exceeding $200,000, the majority of students take on debt for their doctor of veterinary medicine degree. The type of loans you borrowed to pay for vet school and your employer will play a big part in whether it makes sense to refinance.

• If you have private student loans: There’s little downside to refinancing private vet school loans if you can qualify for a lower interest rate.

• If you have federal student loans: Government options are the best student loans for vet school because of their repayment flexibility and protections. By refinancing, you give up access to options such as Public Service Loan Forgiveness and income-driven repayment.

• If you work for an eligible nonprofit or government agency: Don’t refinance federal student loans if you will qualify for tax-free Public Service Loan Forgiveness. Most animal hospitals are privately owned, so this may not be a concern for many veterinarians.

Which option saves you more money?

The most important federal benefit for vets will likely be income-driven repayment, which can greatly reduce monthly payments depending on how much money you earn. These plans also forgive your remaining debt after 20 or 25 years of eligible payments, but that amount is taxed.

» MORE: How to pay off vet school loans

Vets aiming for income-driven forgiveness should compare how much they’d repay overall — including taxes — to how much refinancing would cost. Let’s again consider our example veterinarian who owes $183,014 and makes $76,633:

• By choosing income-driven repayment. She would pay $206,098 over 20 years on the Pay As You Earn, or PAYE, plan with an additional $236,795 forgiven, according to the Department of Education’s Repayment Calculator. At a tax rate of 30%, the total repaid could be roughly $277,136.

• By refinancing vet school loans. If our veterinarian qualified for an interest rate of 5% and chose a 20-year term — typically the longest refinance lenders offer — she would repay $289,874 overall. That’s roughly $12,730 more than under income-driven repayment.

Refinancing may not make sense for this veterinarian, but your numbers will depend on your personal situation. For example, you may face a larger bill if you earn too much money to qualify for PAYE.

If you have good credit and enough income to handle the 10-year standard plan, compare refinancing on those terms as well. For example, $183,014 of debt would result in a total repaid of $255,900, assuming the current graduate PLUS loan rate of 7.08%. Refinanced at 5%, that total falls to $232,938 — a savings of nearly $23,000.