June, 2018: Over the past year, we’ve helped thousands of recent medical graduates determine if refinancing their loans DURING training is suitable. Generally, because most teaching hospitals are non-profit organizations (therefore qualify you for forgiveness through PSLF) and payment relief is needed, the answer is no… but there are cases where it IS appropriate to take advantage of lower rates in the private marketplace while it’s competitive. While we’ve seen a few entrants come into the resident refi space (and go) in recent years, there are two established players who will offer rates as low as 25 basis points above attending rates with up to 4 1/2 years of $100 monthly payments: Sofi and Laurel Road (formerly DRB). You can access their links through DWOQ’s partnership which will provide you with at least a $200 welcome bonus if you refinance:
Because you’ve likely heard about these lenders or heard from them directly, I wanted to revisit the considerations that EVERY resident with student loan debt should examine before they refinance with a private lender. This is an irreversible action, so be sure you understand the below in detail before you proceed:
- Revised Pay As You Earn (REPAYE): This program, not even two years old, can reduce the effective federal loan interest rates to as low as 3% for many doctors in training. This is achievable because when your monthly payments don’t cover your accruing interest (ie training), only half of the outstanding interest is charged. Learn more about this program in detail here.
- Payment Flexibility: With a residency refi, you’ll be committed to entering your chosen repayment term after training (the maximum deferment is 4 1/2 years), regardless of whether or not you’re ready to. So if you’re unsure whether or not you’ll pursue that Fellowship, understand that you’ll have to find a way to make full payments once the deferment term is complete. Keep in mind, the lowest rates will only be offered to those prepared to repay over 5 years (advertised rates as low as under 4%), and this may be a difficult commitment to make early in training (to pay roughly $250k back over 5 years, monthly payments could approach $5k).
- Credit Considerations: If you do apply, be sure to receive an indication before you proceed with a complete application, which requires a “hard” inquiry on your credit report. If ultimately the results won’t lead to a desirable outcome or a lower rate, don’t complete the application!
- Discharge and Interest Accrual Benefits: With Sofi and Laurel Road, federal benefits such as discharge in death or disability are still offered, as well as the simple accruing of interest during training (versus compounding, which adds cost).
- Private Loans: If you’re able to reduce your rates on high or variable rate private loans (including previously refinanced loans), there’s little reason NOT to do so.
- If you are (or will soon be) married and your spouse has significant income and no student loan debt (nice work there, by the way…), your only option to maximize PSLF is to file your taxes separately, which can increase your tax liabilities substantially.
- Physicians with $100,000 or less in overall federal loan debt will likely see little value to PSLF.
- If you’re in a for-profit training program, these years won’t qualify towards PSLF. That said, if you plan to spend 10 years in a non-profit environment AFTER training, generous savings may be available for those who still have high debt to income ratios in practice, and refinancing may still not be suitable.
- If you have no interest (pun intended) in relying on the government to forgive any of your debt, while I might ask why and convince you to reconsider and instead build up a separate “loan savings fund,” you may wish to consider refinancing now while rates are competitive.
- Public Service Loan Forgiveness: If you are seeking to maximize savings available through the PSLF program, DO NOT REFINANCE YOUR FEDERAL LOANS TO A PRIVATE LENDER WITHOUT FIRST IDENTIFYING YOUR PSLF SAVINGS. This program is still very much in place (see your Promissory Notes), and the President’s 2018 budget proposal contemplates grandfathering existing borrowers if it’s eliminated or capped in the future. In many cases, the total required payments are much less than the overall debt. There are four exceptions here:
As mentioned above, DWOQ readers and referrals receive at least a $200 bonus when they refinance, but more importantly, borrowers who use our link are entitled to a FREE consultation with a DWOQ Advisor to review the offer with you and discuss ALL your options in detail… AT NO COST TO YOU.
But if you’re unsure if refinancing is suitable, which I expect many of you may be, we recommend conducting a FREE Refinancing Suitability Analysis to weigh your options in advance of applying. If we determine refinancing is suitable, we’ll serve as your advocate to streamline the application process, apply leverage where applicable, and you’ll get that $200 bonus for working with us. It’s really a no-brainer.
’til DEBT do us part,Jason DiLorenzo
Doctors Without Quarters, LLC
Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.