My Experience Refinancing My Student Loans

By: #LifeofaMedStudent

It’s well-known that medical students are dealing with more and more student loan debt. After all, about 75% of medical students have some debt – with an average of $190,000! With these numbers, many of us wonder what path we should take – Income-based repayment? PSLF? Refinance? This post covers my experience refinancing student loans, how I ended up locking in a great rate as an attending, and the big mistake I made along the way.

After medical school, I graduated with about the average amount of debt, ~$185,000. Like most at the time, I quickly jumped on the Pay As You Earn (PAYE) plan – which kept your payments at 10% discretionary income, based on the prior year’s tax returns. This was in some ways great, as my student loan payments were almost nothing my intern year. Then my second year of residency, they were based on the income from the prior year – which was actually only half a year of intern salary since residency didn’t start until July. During these years, my payments were around $100/month.

Being on income-based repayment also qualifies you for Public Loan Forgiveness – where after 10 years of work for a non-profit entity (almost all academic hospitals/residencies) your loans are forgiven. So each year I also sent in my PSLF paperwork to get credit for those payments.

As residency went along, however, a couple of things began to become clearer. 1) Looking at the makeup of anesthesia jobs, it became more and more likely that I would not work for a non-profit entity after graduation. 2) I started moonlighting in my 3rd year of residency and increasing my income, thus subsequently was preparing for a fairly significant increase in my monthly loan payment the following year. I started to wonder what other options I might have.

Then it happened – about 16 months prior to finishing residency I signed an attending contract for a private practice group (that was not non-profit) setting up my life as an attending. The future was even more clear – I would not qualify for PSLF and definitely be on a path to refinancing! But could I get a jump-start and do this as a resident?

Even though this was just a few years ago, there weren’t many companies at the time refinancing residents. Just LinkCapital and Laurel Road (then DRB). I put in applications with both of them and was a little disappointed in the results – my interest rate offered was actually just a point lower than my government 6.5% average! One short-term benefit was that both companies would charge me minimal monthly payments as a resident, though obviously every dollar not going to repayment meant the loan was growing long-term.

I weighed my options and decided not to refinance. I was disappointed the rate wasn’t better and even though I had a signed contract, I worried about losing the chance at PSLF if something fell through with the private practice job. In retrospect, this was probably at least a $10,000 mistake!!

For one, because anesthesia is frequently a private practice job and nearly all the jobs in Indiana I would have been interested in were private practice or for-profit, it was probably unlikely I would ever qualify for PSLF – regardless of WHAT job I ended up with. It’s also debatable, being in a high paying profession with only an “average” amount of loans if the benefit of PSLF would have been that great. While I’m sure I would have had some amount forgiven, it likely would not have been a life-changing amount compared to prioritizing paying the loans off quickly after refinancing.

Two, even a 1% reduction in interest on $200,000 in loans is an important difference. With a 10-year repayment plan of $200,000, dropping the interest from 6.5% to 5.5% saves over $15,000 in interest!

I continued to live with this mistake even into the first 6 months of being an attending. I was now choosing to prioritize other debts/financial goals while still taking advantage of student loan payments well below my now “real money” attending job. This was over a year and a half since I should have refinanced as a resident!! Finally, in December 2017, I went back to refinance!

Companies had come a long way in the mean-time. Multiple companies now refinance as a resident, often with better rates/considerations for those with signed attending contracts! As an attending with a contract and 6 months of pay-stubs behind me, refinancing at a great rate was a breeze. I went to many of the major companies and filled out applications online. They all ask the same basic information and it’s actually a really quick process, I was able to apply to 4-5 companies in a single morning.

The rates were great (around 3.4% in late 2017) and similar between companies. I was now torn between choosing a fixed or variable rate and how long to pay it off for. This topic is a post of its own – but generally, the faster you plan to pay off the loan, the more advantage to the variable, as rates are unlikely to rise much in a shorter timeframe. I ran the numbers, and the difference between my variable rate and the fixed rate was about $4,500 over the 5-year plan I was looking at – IF the variable rate didn’t increase at all.

As I went back and forth on this, a small change helped make up my mind. I logged on to my account with Laurel Road and they had dropped their offered interest rate another 0.1% on the fixed (but not the variable), making them now the lowest rate among companies I applied.

In literally an instant, I decided to take that rate and run. The $4,500 difference I calculated versus variable was now actually less, and given that interest rates ARE rising, I knew the end result would be even smaller. While math certainly would still favor the variable, I decided that likely a few thousand difference (or less than a single monthly payment) was worth it to never think about that interest rate again. I know myself enough to admit that it would have been something I constantly was keeping an eye on and worrying about!

The big picture!!! If you compared my now $230,000 ($185,000 principle + 4.5 years of interest) in loans at the government standard 10-year repayment at 6.5% interest, to my refinanced plan of 5 years at 3.25% interest – the savings come out to over $65,000!! Just phenomenal!!!

The biggest thing I learned was that the refinance process is actually very simple, fast, and pretty stress-free. All the major companies have great online portals that make it easy. And once you have the information for one company, you can quickly apply that to several more without much extra work. I actually may look to refinance again every year to check rates and see if financially it may make sense to slow my payoff and invest more. Though, I can’t imagine how good it will feel to have these loans gone and am planning to prioritize that!

What would I do differently? Definitely, refinance as a resident!! Once I had the contract signed and knew I wasn’t on the PSLF path, any decrease in interest rate is worth it! Especially, considering how easy the process was, I’d just refinance again for even better rates once officially an attending. That was truly a $10,000+ mistake!

If you find yourself in a position to refinance, check out #LifeofaMedStudent’s Student Loan Refinance page. Here I’ve listed a few companies (most of which I personally applied with) that will give you a cashback bonus if you refinance through those links. A couple of hundred bucks back and saving thousands in interest, hard to argue with that – especially when it’s a financial move you likely should be making anyway!

Have you refinanced – what was it like? What company and kind of plan did you go with – how many years? Variable vs Fixed? Share your experience in the comments section!

Update December 2019: I refinanced my loans a second time! This time I went with Earnest and because rates went down and I’d cut my total debt in half, I did a variable rate at 1.71% for 5 years. I plan to pay that off completely in 2020 – but with such a low rate you could certainly argue investing in a side fund along the way.

Update December 2020: Well the interest rate plummetted and COVID happened, and so I have been paying the minimum on my student loans the last year. Why you ask?! The rate REALLY plummetted… my student loan interest rate is now 0.15% and online savings accounts earn more than that. So while I am paying the minimum, I am also making sure to “invest the difference” via putting some each month in savings accounts and also investing in my taxable account each month.

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