Refinancing medical school loans 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.
Reducing your interest rate can make a five-figure difference when you have six-figure medical school debt. For instance, refinancing $196,520 — the average medical school debt in 2018 — from a 7% APR to a 5% APR would save about $200 a month and almost $24,000 total, assuming a 10-year loan term.
Doctors can refinance medical school loans during residency or wait until they become attending physicians. But don’t do either if you’re interested in Public Service Loan Forgiveness or income-driven repayment — refinanced loans aren’t eligible for those programs.
Refinancing during residency
Refinancing is one of several strategies for paying off medical school debt. A few lenders have student loan refinancing programs specifically designed for medical residents. These programs allow residents to pay as little as $1 or $100 a month, depending on the lender, and begin making full payments once their residency is over.
This strategy can ease your financial burden while you’re making less money as a resident.
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, or make larger-than-minimum payments to keep the interest at bay.
You’ll likely qualify for an even lower rate once you complete your residency or fellowship, so consider refinancing again as an attending physician.
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Refinancing after residency
A second medical school loan refinancing strategy is to use a federal income-driven repayment plan during residency and refinance after you complete your training. Of the four income-driven plans, many physicians use Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE).
This is a good strategy for doctors who don’t qualify for a lower rate as a resident but need lower monthly payments. In this case, work on building your credit during residency so you can get the lowest possible rate in the future. You’ll have more options for refinancing medical school loans once you have a higher income as an attending physician.
» MORE: PAYE vs. REPAYE: How to choose
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How to refinance medical school loans
1. Confirm that refinancing is right for you. Before refinancing federal student loans, triple-check that you are comfortable giving up federal loan benefits including access to Public Service Loan Forgiveness and income-driven repayment plans. If you have a mix of federal and private student loans and want to maintain access to those programs, refinance just the private loans.
2. Check if you qualify. You generally need a credit score that’s at least in the high 600s to qualify for student loan refinancing. The higher your score, the lower the rate you’ll likely get. Some lenders have pre-qualification processes that allow you to see a personalized rate before you officially apply — they’ll do a soft credit pull, which won’t hurt your credit score, to determine your rate.
3. Shop around and apply. Get rate estimates from multiple lenders and choose the one that offers you the lowest rate.