Most medical students wisely pay for medical school using federal student loan programs. Federal student loans for medical school have benefits private loans don’t, such as income-driven repayment plans and loan forgiveness options.

That said, federal student loans may not stretch as far as the student needs. There are many private lenders who cater to medical professionals, which we will review in this article. We’ll also look at how credit history and lack of income may effect loan terms.

As you progress in your career, you will have opportunities to refinance your medical school loans. Doing so may save you thousands over the years.

Should You Refinance Your Medical School Loans?

Refinancing your medical school loans could be a great option for you.

However, there’s always a possibility that’s not the case. Some scenarios make refinancing a bad idea for some physicians or dentists — at least financially.

Here at LeverageRx, we believe that financial plans should be individualized.

Some financial moves are generally smart. Yet, there are always circumstances to consider to ensure this proves true for the individual.

Debt refinance is one of those circumstances.

Let’s discuss some of those concerning medical school loans:

Consolidate vs. Refinance

It’s important to understand the difference between consolidating and refinancing your loans. In some instances, one or the other would be the best option.

What Is Medical School Loan Refinancing?

When you refinance your medical school loan, you get a new loan with lower interest rates and better payment terms. This new loan replaces your old loan.

What Is Medical School Loan Consolidation?

When you consolidate loans, multiple loan amounts are combined into one lump loan giving you one monthly payment.

For example, say you have multiple private student loans. By combining them into one loan, you keep your finances simpler and often benefit from a lower monthly payment.

How can you determine whether student loan refinancing or consolidation is best for your financial goals?

There are a few factors to consider.

First, how many medical student loans do you have, and what are your current student loan payments? What is the total amount of medical school debt that you currently owe?

Would a student loan refinance lower these payments?

Federal Student Loan Programs

Acquiring student loans from the federal government is the most popular course of action. After all, they offer many repayment options, especially for physicians.

These student loan repayment plans are also called “income-driven repayment plans.” That’s because the monthly payments depend on a person’s income.

Income-Driven Repayment Plans

• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
• Pay-As-You-Earn (PAYE)
• Revised-Pay-As-You-Earn (REPAYE)

Income-Based Repayment (IBR)

To qualify for IBR, your monthly student loan payment can’t equal or exceed what your payments would be under the 10-year Standard Repayment Plan.

For example, if you have $150,000 in student loans, but are single and make $150,000 a year, you will not qualify for IBR.

For borrowers who issued their loans after July 1, 2014, IBR caps payments at 10% of your discretionary income. The repayment term is 20 years and after the term expires, the remaining loan balance will be forgiven.

For borrowers who issued their loans before July 1, 2014, IBR limits payments to 15% of discretionary income. The repayment term is 25 years, after which the remaining loan balance is forgiven.

Income-Contingent Repayment (ICR)

The good thing about ICR is there is no income eligibility requirement. Monthly payments on ICR plans are set as the lesser of:

• 20% of your discretionary income
• The amount your monthly payments would be if your loan is amortized over 12 years

ICR also offers student loan forgiveness after a maximum repayment period of 25 years.

Pay-As-You-Earn (PAYE)

Pay As You Earn (PAYE) caps a borrower’s monthly loan payment at 10% of discretionary income which means this program works out better for residents or physicians just starting out, rather than seasoned doctors. This is a hypothetical resident’s situation:

• $58,000 salary
• Single with no kids
• Has student loans totaling $150,000 at 5.7% interest
• Current monthly payment $1,642

If this person qualifies for PAYE, it will slash her monthly payment from $1,642 to $333. That’s quite the savings! However, the resident’s monthly payment will grow proportionally to her income. The beauty of PAYE is it helps medical professionals through the lean years of residency by drastically lowering their monthly student loan payment.

Revised Pay As You Earn (REPAYE)

REPAYE is a new-and-improved version of PAYE. It was introduced in 2015 as a way to make more student loan debtors eligible for PAYE.

A borrower’s monthly payment under REPAYE is 10% of their discretionary income and there is no cap on monthly payments. The more you earn, the more you will have to repay each month on your loans.

The maximum repayment period under REPAYE is 20 years for undergraduate students and 25 years for graduate students. Once the repayment period expires, the loan is forgiven.

Learn the difference between PAYE vs REPAYE in our in-depth article.

Should You Refinance a Federal Student Loan?

When deciding whether or not to refinance a federal student loan, there are some things to consider:

• You could lose the repayment options above if you refinance your medical student loans.
• The federal government is often much more understanding than private lenders when borrowers request a deferment or forbearance when finances are tight.

The Parent PLUS Loan

Also available to medical students with supportive parents is the option to secure a Parent PLUS loan.

Some medical students may consider refinancing to transfer that debt to their name to alleviate some financial burdens on their parents.

Student Loan Forgiveness Programs

Instead of working out an income-based repayment plan, or refinancing your private loans — you may want to consider student loan forgiveness programs. Here is an overview of the most common programs.

PSLF (Public Service Loan Forgiveness)

The Public Service Loan Forgiveness (PSLF) Program forgives federal student loans for employees of certain public agencies and nonprofit organizations. Medical professionals can qualify for this program by working full-time for a 501(c)(3) tax-exempt nonprofit or public institution.

However, borrowers must make monthly payments for 10 years while being employed at the qualifying agency or nonprofit before the debt is forgiven. And, this program is unfortunately hard to qualify for.

As of June 30, 2018, 33,000 applications were submitted and 98% of those applications were denied PSLF.

In short, PLSF will pay your remaining Direct Loan balance, if you have:

• Been employed by a nonprofit or government organization
• Made 120 qualifying student loan payments

National Health Service Corps

The National Health Service Corps (NHSC) provides up to $50,000 for student loan repayment assistance. To obtain this funding, doctors must commit to serving in an NHSC site in a high-need, underserved area.

The term of commitment is typically two years. Once you complete those two years, you may be able to extend your service. This would result in additional loan repayment assistance.

This organization offers several options for physicians to earn some student loan forgiveness.

Eligibility requirements include:

• United States Citizenship
• Eligible or currently in service in Medicare, Medicaid, or State Children’s Health Insurance Program
• Training and licensing in the NHSC in the state you plan to serve
• Qualified student loan debt in the degree that made you an NHSC eligible health professional
• Employment at an NHSC site

NIH Loan Repayment Programs

The National Institute of Health offers some student loan repayment for qualifying medical professionals who commit to aiding in NIH-directed research.

To qualify for its repayment program ($35k per year), participants must agree to perform research funded by a nonprofit organization. The commitment must be for a minimum of two years.

Military Programs

Many federal benefits come from enlisting in the military. Medical residents who are also in the military can take advantage of federal student loan benefits offered by the U.S. Armed Forces.

Your payments and or interest can be deferred both during and after active duty.

You may qualify to have your loan forgiven under the Public Service Loan Forgiveness program. This only applies to Federal Direct Loans.

Qualification factors include:

• Full time employment at a qualifying government service (e.g., military service) or non-profit service agency
• Proof of 120 student loan payments paid on time

Are you eligible for medical school student loan forgiveness? Read our post — Medical Student Loan Forgiveness — to discover your options!

The Benefits of Refinancing Your Student Loan Debt

Refinancing your student loan debt is financially beneficial in many instances.

Here’s a list of benefits you can expect from refinancing these loans:

Lower Your Interest Rate

The biggest benefit of refinancing your student loans is the savings you’ll see by qualifying for a lower interest rate. The rate offered depends on your current credit score.

Banks competing for your business will try to entice you with a low-interest rate. While this number is important, you’ll need to be careful you don’t get distracted by such a low APR that you don’t check the other terms.

Lower Your Monthly Payment

Is your main concern lowering your monthly bills?

Then, you may be excited by the prospect of refinancing your student loans to get a lower monthly payment. Doing so may or may not come with a lower interest rate as well.

Lowering your interest rate can help you to extend the length of your loan. This — in turn — will lower your monthly payment without adding extra interest payments.

Choose Your Rate

When you refinance medical school loans, you often get the option to choose whether you want a fixed-rate or variable-rate loan.

Fixed-Rate vs. Variable-Rate

A fixed-rate loan is a loan with an interest rate that remains the same throughout the life of the loan. This type of loan is most beneficial when interest rates are low nationwide.

Variable-rate loans will have an APR that fluctuates throughout the life of the loan. Variable-rate loans are a gamble. If the economy starts to fail, your loan will begin to cost you more.

Choose Your Loan Length

Another aspect of refinancing that may be beneficial is to change the length of your loan.

Short-term vs. Long-term

The benefit of choosing a short-term loan is that the faster you pay off your loan, the less you’ll pay in interest. However, your monthly payments will need to be higher.

Long-term loans will provide the opposite benefit. These loans will come with a lower monthly payment, but you’ll end up paying more interest as time goes on.

How To Get the Best Out of Refinancing Student Loans

By now, you’re likely considering your refinancing options for your student debt. But first, there are some actions you can take to ensure you get the best results from this process:

1. Improve Your Credit Score

As we already mentioned, the loan interest rate a bank offers will depend on your credit score. With this in mind, the more you improve your credit score before refinancing, the more you benefit from this action.

You can ensure that your credit score increases by:

• Making on-time payments to all of your creditors
• Paying more than the minimum payment each month
• Keeping your balances lower than 35% of the total credit limit

Another way to help boost your credit score is to check your credit report for errors. Although it’s rare for credit bureaus to make mistakes, identity fraud is not.

If you have bad credit but feel the need to refinance, you can enlist the help of a cosigner. Their credit score can improve your eligibility for a lower rate.

2. Increase Your Income

You can often qualify for better rates after med school just by entering the workforce and increasing your income.

Your new salary will improve your debt-to-income ratio. This is, of course, a major factor in the eligibility requirements that lenders look for.

3. Choose the Best Lender

Banks are competing against one another for your business. You can take advantage of this by shopping around for the best rates.

However, the lowest APR isn’t always the best loan, and there isn’t just one loan that is best for all individuals. Your unique financial needs and situations may benefit best from different loan terms.

Are you unsure which loan terms you should prioritize?

If so, a financial expert from LeverageRx can help you compare options through Credible.

Now, let’s talk about the top things to look for in a lender:

Competitive Rates

Checking rates is the first thing you’ll want to do when comparing lenders. Lenders with the best rates should make it to the top of your list.

Those with the lowest rates are more promising, but they also must check the rest of the boxes.

Low Fees

When it comes to fees, you’d prefer to pay none, but if there are fees to pay, you want them to be as low as possible.

Check to see if lenders charge origination or disbursement fees to refinance your student loans, and if they do, how high these fees are.

Flexible Repayment Terms

We’ve already discussed the option to change your fixed interest rate to a variable APR. You may also want to refinance from a variable-rate loan to a fixed-rate loan.

The lender’s flexible repayment terms should give you this option. You should also be able to choose from short or long-term loans.

Lenders should also provide the option to refinance both federal or private loans or combine the two.

They should also allow you to pay as much as possible without prepayment penalties.

Easy Loan Application Process

We’re all busy, and filing paperwork can be tedious. That’s why the best lenders streamline their application process to be more convenient for their customers.

Is the application process lengthy or complicated?

Does the bank provide good customer service to help you if you hit any snags in this process?

Do they offer an online application process?

The answer to these questions can help you determine whether doing business with a lender will be worth your time.

Added Benefits

Forbearance options and career help are two big factors most people looking to finance fail to consider.

No matter how good of a physician you are, you can’t control all aspects of your career, and you may need these benefits in the future.

Another helpful benefit that can save you money is an autopay discount. An autopay discount gives you a rate discount by enrolling in automatic payments.

The best way to secure your financial outlook as a physician is to prepare. Learn more about the money problems physicians face and how to prevent them.

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