Financial Planning for Doctors

There is an elephant in the room when people finish their medical training.  It is called student loan debt.  Some choose to pursue student loan forgiveness options, while others choose to refinance their student loans.  Then, they start making their monthly payments.  This is where the thought process usually stops.  For those that choose to refinance their student loans, you need to know about one other technique: using a student loan refinance ladder.

Let’s discuss what this is, why it might be beneficial, and work our way through an example of how you might apply this along the way to destroying your student loan debt.

Student Loan Refinance Ladder

I’ve advised multiple residents to consider refinancing their student loans multiple times.

I even discuss refinancing more than once in The Physician Philosopher’s Guide to Personal Finance (which I’ll plug – it has an awesome 5-star review after being read by over 1,000 people.  Click here to buy your copy!)

Then, I recently heard a podcast featuring Travis Hornsby over at The Student Loan Planner.  Leave it to him to  come up with a good name for this multiple refinance process: the Student Loan Refinancing Ladder.

Student Loan Refinancing Basics

Not everyone should refinance their loans.  Let’s discuss some of the basics behind student loan refinancing.  Then, we will be better prepared to discuss who should consider using the student loan refinance ladder.

Note: The most important thing to say up front is that refinancing student loans is NOT like refinancing a house.  There is no cost to refinancing student loans (unlike refinancing a house, which costs a good chunk of change).  This is why the student loan refinance ladder discussed below works. 

First, if you are planning to pursue student loan forgiveness, you should not refinance your federal student loans.

However, private loans cannot be forgiven through federal programs.  So, feel free to refinance private loans even if you have federal loans (you can deal with them separately).

Next, it is good to know that student loan interest rates are based on the LIBOR (London Inter-bank Offered Rate), which changes monthly.  This means, that – as interest rates rise – there is a chance that your rate could also increase if you refinance. So, if you still have a boat load of student loans, refinancing may not be the best option in this situation.

Fortunately, you can get quotes before you actually refinance (the quotes are a “soft check” that do not count against your credit).  So, you’ll know if the LIBOR rate has changed and whether your rate stands to improve or not.

The final thing to mention is that you can refinance to change the terms on your loans.

For example, you could refinance to a 20 year fixed rate to lower your monthly payment (for those private practice doctors who need to increase cash flow so that a bank will let you buy into a business).

Then, after you are approved, you could refinance again to lower your interest rate by getting a shorter term with a variable rate (e.g. refinancing with a 7 year variable rate).

Student Loan Refinance Ladder Case Study

The Situation

Let’s take the graduating from medical school with $200,000 in student loans earning 7% interest (~$14,000 annually).

In this example, let’s say she is single and intends to go into private practice after her five year general surgery residency.  She wants to minimize the total amount she pays back on her student loans, and plans to have them paid off in two years after finishing residency.

Even though private refinancing options exist for residents, REPAYE is the clear winner in this doctor’s situation.  Through REPAYE, she knows that she will have half of her interest ($7,000) paid each year by the U.S. Department of Education.

Given the interest that is paid on her behalf, this effectively lowers her interest rate through REPAYE to 3.5%.  This is better than what she is likely to get through private refinancing options while making a resident salary.

So, she wisely chooses REPAYE for the first four years of her residency training.

Using the Student Loan Refinance Ladder

In July of her last year in training, she lands her dream job in private practice.  She has signed on the dotted line for a $250,000 salary.  She will make more when she becomes a partner.

Fortunately, she now has a “contract in hand” and knows that some companies will consider her “guaranteed” future income to determine her rates.  Enter here the student loan refinance ladder.

She refinances with Common Bond (and gets her $400 cash back bonus available for TPP readers) through the Student Loan Refinance page. She knows that Common Bond requires a monthly payment of zero dollars and will consider her guaranteed attending income.

Her interest rate drops below her “effective interest rate reduction” she was receiving through REPAYE for this year.  She can also throw any additional money (say, from moonlighting income) she has at these loans without getting hit by a fee.

Interest rates continue to decline.  So, she chooses to refinance with Laurel Roads (snags her $320 cash back bonus) to get yet another lower rate.

Six months later, she refinances one last time with SoFi because she knows that TPP readers get a 0.25% interest rate reduction when they use the links on this site (the lowest that I am aware of out there).   She chooses a five year variable length (with a 0.25% interest rate reduction) to get the lowest possible interest rate.

What’s the Outcome

In the example given above, this financially savvy doctor has accomplished a lot.

She minimized her debt in training utilizing REPAYE.  Then, she used a student loan refinance ladder to earn $720 in cash back during the process. She could have earned more, if she refinanced with some other companies, too. Remember, there is no limit.

Assuming that her debt accrued to about $225,000 during training, this 0.25% interest rate reduction that she received through The Physician Philosopher website will save her over $1,000 during the two years she plans to pay back her loans.

That’s better than any cash back bonus she can find somewhere else.

Take Home

Knowledge is power.  By realizing that you won’t incur any costs when you refinance your student loans, and that there is no limit to it… real benefits can be found in using a student loan refinance ladder.

I’d love to hear from those of you who have refinanced multiple times.  If you are considering doing this, but haven’t – what’s holding you up? Leave a comment below.  


4 thoughts on “Student Loan Refinance Ladder: A Case Study”

  1. I just read the section on student loans in your new book and thought it was great. Every medical student should read that.

    Keep up the good work teaching young doctors about finance.

    Dr. Cory S. Fawcett
    Prescription for Financial Success

  2. What a great article. I refinanced my federal loans only once. I had a good credit score, but a less than stellar credit report with one account closed with collections (just wrote a blog post about it). When I was lucky enough to get one lender to refinance, I stuck with that company, and overpaid with the avalanche method until all loans were done. I was afraid no one would refinance me again until that black mark fell off my credit report.

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