This is part 2 of our Student Loan Refinancing Series where I’ll answer the when, what, where, and why of Private Refinancing. If you haven’t read Part 1 to determine whether you should take part in Public Service Loan Forgiveness, then I encourage you to go back and read that. That really is the first question to answer. If you have determined that PSLF is not for you, then you have come to the right place, my friend. Today we will discuss how to choose both resident private refinancing and attending refinancing options.
You can skip to the bottom of the post if you want the salient points. That said, I think most of this post is a pretty important read regardless of whether you are in training or out of training. But, hey, I wrote it… I don’t like writing stuff that wastes your time.
Refinancing During Residency
Caution: I personally advocate for MOST residents to take part in REPAYE if the program works for them even if they plan to privately refinance later at the end of training. The subsidy provided by the government through this program will often lower your rate below what a private refinance company will offer. So, do the math before proceeding below!
Why it’s important to refinance can be shown with some math. I’ll take this from Part 1 in this series:
The average medical student comes out with $190,000. Most rates are around 6 to 7% interest. Let’s say you are in a five year residency. Using the future value function in excel we can determine how much you will owe at the end of your 5 year residency, which will be $254,635. This amounts to $64,635 in just interest. That’s a lot of money. Anything you can do to decrease this is a good thing.
What if you refinanced your student loans through a private refinancing company to 5% during residency for the first 4 years, and then refinanced to an attending rate once you had a contract in hand during your last year? The total accumulated interest for your original $190,000 is now $46,006 assuming you made NO PAYMENTS during that time. Because you refinanced your loans you will be saving yourself $18,629 compared to if you didn’t refinance at all. In reality, it’l probably be lower because you will make some small payments during residency.
As of this post getting published, there are five companies (if you count the ones that allow you to refinance in your last year of training) that allow you to refinance during residency: SoFi, Commonbond, Splash Financial, Laurel Road, and Link Capital. [You can also visit my Student Loan Refinance Page to read more information on the deals I’ve gotten my readers. I worked hard on them to get the best benefit for you, and it comes at literally no extra cost to you].
An important caveat
Some of these private refinancing programs will let you refinance at a much lower rate (maybe even the same rate you’d get as an attending) once you have your contract in hand in your last year of training. Knocking your interest rate from 5 or 5.5% down to 3.5% is obviously beneficial. This is something that every resident not pursuing PSLF should pursue. Without exception.
After Residency Refinancing
There are more options for refinancing after residency. All of these options can be found at the bottom of the TPP Student Loan Refinancing Page.
After residency refinancing is a little simpler. However, there are also more options to choose from. You need to find the program that meets your needs while providing the lowest interest rate.
There are some things to consider, though. Below are some things to look into and to discuss in your search. Consider these items and ask these questions to find the right choice for you.
- The rates advertised on websites are exactly that: Advertised Rates. You need to apply to multiple companies and get rates. These are all “soft” credit checks and do not count against you. Getting the lowest rate at the term that works for you is important. Do not only apply to one program.
- What happens to your loans upon death or permanent disability? Where can you find this language (you should ask to see it)? How concrete is the language? Does it go to a board who decides if it will be forgiven or is it always discharged upon death?
- Can you consolidate your loans with your spouse? While some people may think this is a terrible idea with today’s high divorce rates, others may think this is a great idea. If you consolidate, what happens when you die? Do they have to cosign? The reason I mention this is I took on $40,000 from my wife’s grad school loans. I did not have her co-sign with me. If I die, her debt dies with me. She is a school teacher. No reason to leave her with massive debt. Others may think very differently about this.
- What kind of rates and term lengths do they supply? Obviously the shorter the repayment period the lower the interest rate. Variable rates also offer better rates. I encourage you to take the shortest variable rate you are comfortable with taking. The interest rate would have to go up immediately after refinancing and go up A LOT for you to lose money compared to a fixed loan. Do what’s right for you, though. Because I can’t get disability insurance, I took a 7 year variable just in case. You have to pick terms that let you sleep at night.
- Speaking of disability, you should ask what happens to your loans in times of hardship (disability, loss of job, etc)? Not all companies treat this the same. Ask for the specific language or policy.
- Is there a maximum amount that the company will refinance? Some companies can refinance a greater loan amount than others.
- Do they contribute to a social cause you care about? Some companies give to social causes when you refinance through them.
In my attempt to write content that will still be valid regardless of when people read this post, I don’t want to include too much about each company on this post. For up to date details, check out the Student Loan Refinancing Page linked above.
That said, if all else is equal, which company gives you more money back if you refinance through them? If they provide the same rate and same benefits that interest you, take the most money back.
The salient points are the following:
- Resident refinancing programs now exist. Many residents still do not know about it. It is your responsibility if you know a resident to spread the word.
- There are only five options for refinancing during residency at this time. They are listed above or you can find them here. (You can also find the after residency private refinancing options at that same link).
- Of the resident refinancing options, some of them also let you refinance at an attending rate once you have your contract in hand for your future attending job.
- As an attending who is refinancing, there are some options that may separate a few companies for you. Apply to multiple companies and get quotes to figure out what works for you. Do not apply to only one company. That’s not a smart move.
- You can refinance as many times as you want. So, refinance with one company as an intern, refinance with a different company that offers “contract in hand” refinancing your last year, and consider refinancing one more time after you finish if you can get a lower rate.
- All other things being equal, refinance with the company that gives you the best cash back bonus. You can find the deals I’ve worked out on my student loan refinance page.
Have I left anything out? Any other questions you want me to research and answer? Leave a comment. I’d leave to hear your thoughts.