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Doctors: Refinance Medical School Loans and Save $36,000+

Doctors with high debt can save big by refinancing, or by combining the option with the federal repayment plan REPAYE.
Aug. 2, 2018
Loans, Student Loans
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Physicians working in the private sector are outstanding student loan refinancing candidates. Here’s why:

  • They earn high incomes, making them sought-after customers among refinancing lenders.
  • They may pay off their loans before they’d qualify to take advantage of forgiveness on a federal income-driven repayment plan.
  • They won’t qualify for Public Service Loan Forgiveness. Doctors interested in this program should not refinance federal loans.

Those who don’t plan to work in the public sector can even refinance during residency to make their payments more manageable, and then refinance again to a lower rate as attending physicians.

How much could refinancing medical school loans save?

Let’s use family and general practitioners as an example. They earn $208,560 on average, according to the Bureau of Labor Statistics.

Meanwhile, physicians graduate with median debt of $228,523, including undergraduate loans, according to 2016 data from the National Center for Education Statistics. That’s one of the highest median debt loads in the U.S., behind only those for dentists and psychologists with a doctorate degree.

Refinancing to a 3.5% interest rate would save the average physician $306 per month compared with the 10-year standard repayment plan.

Assuming that physicians took out a mix of federal direct unsubsidized loans and graduate PLUS loans and studied from 2010 to 2018, their average interest rate would be 6.25%. On the 10-year standard repayment plan, they would pay $2,566 per month and $307,880 overall.

Refinancing to a 3.5% interest rate would save them $306 per month and $36,708 overall compared with the standard plan.

» CALCULATE: How much could you save from refinancing?

How to create a medical school debt refinancing strategy

Refinancing is a no-brainer for physicians who won’t use federal loan benefits and have good enough credit to qualify for a lower interest rate. But you may still have questions about when to refinance student loans, how often to refinance, and how to balance paying off medical school debt with other goals. These tips can help.

Considering medical school loan forgiveness? Skip refinancing

Physicians who work for the government or at nonprofit hospitals often qualify for the Public Service Loan Forgiveness program, which cancels debt after 120 monthly payments. Only federal loans can be forgiven through this program, and refinancing will disqualify them. If you have a mix of federal and private student loans and want to pursue PSLF, refinance just the private loans.

Boost your credit

Refinancing lenders look for customers who have credit scores in the high 600s or above. Before refinancing, focus on paying all bills on time and keeping credit card balances low. You also may want to pull your credit report for free on and make sure it’s error-free.

Refinance student loans during residency

Some refinancing lenders, including Laurel Road, SoFi and Splash Financial, offer refinancing programs specifically for medical residents. If you qualify, you’ll pay $1 or $100 per month, depending on the lender, and then make full payments once your residency is over.

Only federal loans can be forgiven through Public Service Loan Forgiveness, and refinancing will disqualify them.

This strategy can ease your financial burden while you’re making less money as a resident, and if you’re planning on refinancing anyway, gets it out of the way.

But interest likely will accrue faster than you can pay it, so you may end up with a balance at the end of your residency that’s bigger than what you started with. Make sure the low payments are worth it to you before taking this route.

» COMPARE: Medical school loan refinancing options

Consider REPAYE, then refinance

If you want breathing room to focus on other debts and you can handle a potentially higher monthly payment than $1 or $100, use an income-driven repayment plan during residency. Under income-driven plans, your payments may not cover all the interest that accrues, causing your balance to grow.

The best such plan for many physicians is Revised Pay As You Earn, known as REPAYE, because the balance won’t balloon as fast.

The government will subsidize all unpaid accrued interest on subsidized student loans — which you may have from undergrad days — for three years, and half of it after that. It covers half the unpaid accrued interest on unsubsidized loans at all times.

And REPAYE caps federal loan payments at 10% of your income. As a family and general practitioner in our example, you’d pay $1,587 per month on REPAYE, compared with a full payment of $2,260 after refinancing.

Consider signing up for REPAYE during your residency, especially if you have subsidized loans, and using that time to strengthen your credit before refinancing.

Consider signing up for REPAYE during your residency, especially if you have subsidized loans, and using that time to strengthen your credit.

Once you have a higher income as an attending physician, price out refinancing options to see what interest rate you qualify for. Refinance when you’re able to easily manage the monthly payment and your credit can get you as close as possible to the lowest available rate.

REPAYE isn’t ideal for married borrowers — it’s the only income-driven plan that calculates payments based on a couple’s combined incomes, even if they file taxes separately.

And physicians may not benefit from the plan’s forgiveness feature, which cancels remaining debt after 25 years for those with graduate degrees. The average physician in this example would pay off their debt in 22 years, three years before they’d qualify for forgiveness on the plan.

NerdWallet writer Elizabeth Renter contributed reporting to this article.

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