A Step-By-Step Guide to Refinancing Medical School Loans

Sue Lee, Relationship Manager, First Republic Bank
March 9, 2020

Almost 3 in 4 medical school students graduate with an average of $200,000 in medical school debt and about 44% of them plan to enroll in a student loan forgiveness program. And with over 99% of borrowers being rejected for student loan forgiveness, many would be surprised to learn it can be faster — and sometimes less expensive — to refinance medical school loans to a shorter-term loan instead.

When to Refinance Medical School Loans

Before you make any moves with your medical school loans, it makes sense to assess your long-term financial goals. You’ll want to make sure that your chosen get-out-of-debt strategy is the one that best aligns with where you want to be in the long run.

Making a change before you’ve considered your options — and selected a direction — could mean giving up loan benefits you’d ultimately like to apply, particularly if a large portion of your loan balance is federally funded. With that in mind, consider the following.

Should you pay your medical loans off as soon as possible?

Even the most attractive student loan forgiveness program — Public Service Loan Forgiveness (PSLF) — is a 10-year road to repayment and forgiveness. Other income-driven repayment programs can take between 20 and 25 years to complete.

If you’re looking to move past the student loan phase of life so you can focus on other long-term financial goals — buying a house, planning a wedding or buying into a medical practice — it can make sense to refinance your medical school student loans to a shorter term so you can pay your balance back as soon as possible.

Higher-income earning physicians or those with a high-income earning spouse can really swing for the fences with a five- or seven-year repayment strategy. The key is to audit your financial situation, so you know just how much you can afford to allocate toward your student loans each month without overextending your budget.

Do you want to minimize your interest owed over the life of your loan?

Refinancing medical school student loans to one with a lower interest rate can significantly reduce the amount of interest you’ll pay throughout the life of your loan. Refinance to a shorter term, and you could magnify the potential savings.  Use our student loan refinance calculator to see how your savings could stack up.

Do your medical school loans qualify for PSLF or Income-Driven Repayment?

If you’re a lower-income earning physician, work in the public sector or know you’re planning to enroll in an income-driven repayment (IDR) program, you may want to hold off before making a change to your loan status. A medical school student loan refinance will recategorize public medical school student loans to private — a move that will void any public student loan benefits like PSLF, other IDR programs, and deferment and forbearance options.

Public-service physicians can apply for PSLF, a 10-year, tax-free forgiveness program. This program can be ideal for lower-income earning residents who work in the public sector.

Two other income-driven repayment programs — Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) — are available to private-sector workers but don’t come with the same tax benefits or forgiveness options as PSLF and can take between 20 and 25 years to complete. Depending on your income, an IDR program could be less beneficial than a medical school student loan refinance. Here’s why:

  • Because PSLF isn’t guarantee and is, in fact, rare, it’s possible to pay your entire medical school student loan balance before there is any balance left to forgive.
  • Some borrowers could even pay more in total interest than they might with a traditional repayment plan.
  • Finally, if your income-based monthly payments aren’t enough to cover the interest portion of your loan, your balance could actually increase, which can make it difficult for you to switch gears if you later decide to forego IDR and pay your loans back as soon as possible.

These potential adverse outcomes make it particularly important to run your individual numbers before setting a student loan repayment trajectory.

Finally, it’s worth noting that both PSLF and IDR apply to government-funded student loans only and will not apply to any already-existing private student loans.

How to Choose a Medical School Student Loan Repayment Plan

If you’re near the end of residency training and are on track to join a higher-income-earning practice, you may not reap the most promising benefits of an IDR program. That’s particularly true if your goal is to pay your loans back quickly.

Still, the only way to know the most effective pay-back method for your situation, with your individual life goals in mind, is to crunch the numbers. To compare your own IDR (with or without PSLF) versus refinance options, check out this Student Loan Repayment Estimator by the Office of the U.S. Department of Education and input your loan information. Then, run your scenario through our student loan refinancing calculator2 and compare the results.

High-earning, private-sector physicians are often surprised to find they can repay their student loans sooner than the terms available within IDR programs. Sometimes borrowers even save more in total interest paid by refinancing their student loans to a program with a lower rate and shorter term. In some cases, a high-earning physician enrolled in an IDR program will even pay their entire loan balance before they’re eligible for forgiveness, which is not guaranteed. In the end, many may find they unintentionally paid more in interest than they would have if they’d refinanced to a lower-interest, lower-term loan.

Steps to Refinance Medical School Loans

  1. Decide if you’re going for PSLF and/or an IDR program, or if you’d save more time and money by choosing to refinance. Once you refinance your publicly funded student loans, you will no longer be eligible for government programs like IDR, deferment or forbearance.
  2. Decide how much you can pay toward your loans each month, and shop around for the most competitive rate. These two variables predict how quickly you’ll pay back your loans and how much — or how little — you’ll pay in total interest.
  3. Gather all necessary loan documents. That includes proof of income, other assets and outstanding debts (including your student loans). You may also want to take a peek at your credit report before applying, so you’ll have a chance to correct any errors that may be listed.
  4. Apply for your loan. Most banks offer an easy online application or quick access to a private banker who can help you work through the application process.

There are many options available to help ease the burden of medical school student loans. Take the time to decide which option best suits your need and, when ready, look for a lender that offers both an attractive interest rate and an excellent customer experience. Learn more about how First Republic Bank can help you in paying off your medical school student loans through student loan refinancing.1

  1. The terms of this loan may differ from terms of your current loan(s). For example, this loan does not contain special features such as forbearance periods or income-based repayment plans available for some student loans. If the debt you are refinancing was all incurred for qualified higher education expenses or to refinance a qualified education loan under the Internal Revenue Code, the interest you pay on this loan may benefit from certain deductions thereunder, and it may also be the case that this loan will not be dischargeable in bankruptcy. Applicants should contact their legal, tax and financial advisors for advice on deciding whether this is the right product for them.
Refinance your student loans – fixed rates as low as 1.95% APR with discounts.

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