The Handy Guide to Refinancing and Consolidating Medical Student Debt

While the experts talk about the need to lower the financial burden associated with attending medical school, the reality is that student loan debt is higher than ever. Add together undergraduate loans with medical school debt, and some have calculated the total average student loan debt for graduating physicians to be as high as $207,000.

If you are a recent medical school graduate or resident starting into practice, you likely need ideas to help you better manage and repay your student loans. Here are some tips.

Determine Your Goals and Options for Repayment

As you transition from medical school into residency and a practice, you have many professional goals. But if you’re like 75% of recent graduates, you also have debt. So while you’re planning for your future, you need to factor your student loan repayment into your plans.

To set your goals, it’s helpful to appreciate the true cost of your student loans. Namely, the interest payments.

Let’s say you have $207,000 in student debt at a seven percent interest rate. If you take 20 years to repay it, you will pay $178,000 in interest over the life of the loan. If you can cut the number of years for repayment to 10, you’ll reduce the amount of interest you pay to $81,413, saving $96,587. Test out different scenarios related to your situation on this handy calculator.

Here are some ways to pay down some of your debt more rapidly:

  • Postpone buying a home or new car for a few years and put that money toward your loans.
  • Apply all or part of any physician signing bonus to your student loan.
  • Pay your loan in installments every two weeks. You pay half the monthly amount each time, so instead of 12 monthly payments you end up making 26 bimonthly payments. Since that equates to 13 monthly payments, you’ll pay off the principal more rapidly and reduce your interest costs.

Also, consider refinancing and loan consolidation. Whether you apply to an online financial institution or a local bank, they will look at your income, credit score, savings, credit card debt and even the type of degree you received. The better your personal financial profile and your professional opportunities, the easier it is to qualify and receive the best terms.

Refinance Private and Federal Loans

Refinancing means a private lending institution agrees to pay off your existing student loans—both private and federal—and set you up with a new private loan at a lower interest rate.

You have the benefit of consolidating all your loans in one place and making one monthly payment. You can also set a longer repayment period to lower monthly rates (but remember this will increase your total costs.) And if you qualify, you may receive a lower interest rate, which could lower the total cost of your loan significantly.

Banks, credit unions and other private financial institutions offer student loan refinancing. Most lenders provide the option of a lower variable rate or a fixed rate — one that’s locked in for the term of the loan.

You can combine student and parent loans into one refinanced loan with no cosigner. And if you pay your debt more quickly over time, there is no prepayment penalty.

Look to Market Players for Private Loan Refinancing

Private lenders are doing everything they can to help—with financial management tools, consulting and a range of programs available online. When starting out, look around and apply to several institutions. Here are three places to start:

  • Laurel Road: Now part of KeyBank, Laurel Road began originating student loans in 2013. They have refinanced and consolidated more than $4 billion in both federal and private student loans. Eligible working professionals have access to refinancing and consolidation programs as well as deferment options.
  • SoFi: Founded in 2011, Social Finance Inc is an online personal finance firm that currently works with more than 500,000 members. The founders—out of Stanford Graduate School of Business—wanted to help students with more affordable loan options. Today they provide student loan refinancing, mortgages and personal loans.
  • Splash Financial: Based in Cleveland, Ohio, a group of young professionals decided to help college graduates and medical professionals make their “splash” in the world by helping them reduce their loan burdens. Splash Financial refinances student loans through programs to lower monthly payments and/or pay back their debts more quickly.


Take Advantage of Income-Driven Repayment and Consolidation

If you have federal student loans, you may decide to remain within the federal system. Look to Direct Consolidation as an option. You can bundle multiple federal student loans into a single loan payment and in many cases still have access to any potential federal forgiveness and cancellation programs.

While you can extend your loan period and lower your monthly payment, by doing so you will increase the total interest you pay over time. You also have options to change your repayment plans annually, and there are no penalties for prepaying.

To be eligible, you must have at least one loan from the Federal Direct Loan or Federal Family Education Loan program. Private student loans and consumer debt (e.g., credit cards) may not be included in a federal consolidation loan.

One consideration: Borrowers who have defaulted in the past may be eligible to borrow and repair their defaulted loan.

Most federal medical student loans are eligible for an Income-Driven Repayment (IDR) program, which allows you to set loan payments according to your income level. There are several plans available (with repayment periods ranging from 20-25 years). All of them generally calculate your payments around 10% of your discretionary income. Note, however, that defaulted federal loans are not eligible for IDR plans.

Take control of your medical student debt now so you can focus on a future of helping others. Minimize your costs by refinancing your loans and/or paying off your debts early.



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