Before refinancing, ensure you fully understand the Public Service Loan Forgiveness (PSLF) program and have made an informed decision that it is not the right path for you.
As a physician, you’ve likely spent years in medical school and undergrad accumulating significant student debt. Refinancing can help lower your interest rates, simplify your payments, and give you greater control over how you pay off your debt. Here’s a guide to refinancing student loans as a physician and when it makes sense to do so.
When to Refinance
The decision to refinance is a personal one, but it often makes the most sense after you complete residency when you have a clearer picture of your career path and financial situation. During residency, you may benefit from an income-driven repayment plan, and you may not be 100% certain you will not go the PSLF route in the future.
Some lenders offer refinancing options specifically for physicians in training, allowing them to make reduced payments (as low as $100/month) during residency. If you are certain you won’t pursue PSLF and can secure a competitive interest rate, refinancing during training may be worth considering.
How to Refinance
1. Shop and Compare Rates
It’s crucial to compare refinancing rates. Different lenders offer varying rates, loan terms, and repayment options, so evaluating multiple offers can help you find the best deal. Your credit score, income, and total debt levels (including non-student loan debt) will all impact the offer you receive.
2. Choose Between Fixed and Variable Rates
Lenders typically offer both fixed and variable interest rates:
- Fixed-rate loans lock in an interest rate for the life of the loan, providing predictable payments.
- Variable-rate loans fluctuate based on market rates. They often start lower but can rise over time, adding long-term uncertainty.
If you plan to pay off your loan quickly, a variable rate could save you money—especially if rates stay low. However, if stability and predictability are your priorities, a fixed rate may be the better choice.
3. Consider Loan Terms and Protections
- A crucial factor is what happens in the event of disability or death. Some lenders will discharge the loan entirely, while others may require co-signers to take on the balance. Always check this policy before refinancing.
A shorter loan term may seem appealing for paying off debt faster, but a longer term can provide more flexibility, even if at a slightly higher interest rate. You can always make extra payments to pay off the loan sooner, but a longer repayment term gives you room to adjust payments if your financial situation changes.
4. Determine How Quickly You Want to Pay Off Your Loans and What Monthly Payment You Can Afford
- This decision should factor in your income, cash flow, and other goals. See our article for a detailed look at paying off loans and investing.
When refinancing, consider the “order of operations” in your financial planning. That means ensuring that other financial priorities—such as building an emergency fund, saving for retirement, or planning for a home purchase—are in place before aggressively paying down student loans.
For example, if you’re early in your career and still building financial stability, directing funds toward savings and investments may be a better strategy than committing to high loan payments. On the other hand, if you’re financially secure and ready to eliminate debt quickly, a shorter loan term can save you money on interest.
5. Review Regularly and Refinance Again if Interest Rates Drop
- Lenders compete for business, and market conditions change. There will likely be future opportunities to refinance and improve your rate and terms. Stay proactive by checking rates periodically to ensure you’re not paying more interest than necessary.
Conclusion
Refinancing your student loans can be a smart move for physicians, but it is never a one-size-fits-all solution. Take the time to evaluate your financial situation, career plans, and other obligations before making a decision. With careful planning, refinancing can help you take a significant step toward financial freedom.