How to Refinance Medical Student Loans

Here are 5 easy steps to help you find success refinancing your medical student loans

1. Decide if refinancing is the right choice for you

What follows will be a comprehensive guide on how to refinance your medical student loans.

Before we can begin this process, we need to decide if refinancing is right for you.  For my wife and I, we decided to choose refinancing over pursuing Public Service Loan Forgiveness (PSLF).  Check that article out if you wish to learn more. 

However, this was not a decision we made lightly; nor should you.  When it comes to eliminating your debt, you should spend ample time researching all options as it could mean the difference of tens of thousands of dollars…or more! 

Duration of training

There are multiple factors that can heavily influence if refinancing your student loans is the right option.  One factor to consider is the duration of your training.  Are you completing a 3-year residency then going out into practice?  Are you pursuing fellowship?  For some subspecialties (think neurosurgery, electrophysiology, cardiology, urology, etc.) you can be training at a PSLF-qualified institution for the majority of a decade.  In these scenarios, serious thought should be given to applying for PSLF at the start of residency. 

The caveat here is confirming you are in an appropriate repayment plan and that your payments are certified by your government loan servicer. 

Debt-to-income ratio

Another aspect to consider prior to refinancing is your debt-to-income ratio.  Here you need to consider what your attending income will be in comparison to your overall debt.  If you are an orthopedic surgeon with an estimated future income of $500,000 or more, then both PSLF or refinancing are probably viable options.  There is an argument to be made about keeping your cost of living low, refinancing your loans, and paying off your debt in a few short years. 

If you are, however, an ambulatory physician (think family medicine, internal medicine, pathology, etc.) with an estimated future income on the order of $150,000-$200,000 with a debt-to-income ratio greater than 1.5, seriously consider PSLF.  With medical student debt averaging approximately $205,000-$220,000 and a majority of graduates pursuing primary care specialties, a debt-to-income ratio of greater than 1.5 is quite common. 

Qualifying institutions and payments

Not all institutions are created equal.  Prior to taking a contract at a hospital, clarify if they qualify for PSLF.  This may require discussions with your loan servicer.  You will need to make sure your PSLF payments are deemed certified in the eyes of the government.  This means working at a not-for-profit institution (the majority of residency programs meet this criteria), and that you are in an approved repayment plan.  For more information, I recommend checking out the PSLF FAQ page at studentaid.gov. 

Debt aversion

Another aspect that may influence your decision to refinance your student loans is your aversion to debt.  As mentioned earlier, my wife and I chose to refinance over pursuing PSLF.  There are a multitude of factors that led us to this decision, but one of them was our disdain of debt.  We both carried the weight of our combined medical student debt, and it wore us down.  With my wife initially signing a contract with a for-profit hospital, we decided to refinance our debt. 

For some, there is an overwhelming urge to get out from under their debt.  I share this sentiment.  Refinancing at a lower rate, living below your means, and destroying your debt is an enticing offer. 

Previously refinanced

Lastly, if you have previously refinanced your student loans to a private lender, then you no longer qualify for PSLF.  This condition is straight-forward.  If PSLF is already off the table, then your goal is to eliminate your debt as fast as possible, while always prowling for the lowest interest rate possible.  Since my wife and I refinanced in 2018, we are constantly looking for lower rates.  When the moratorium on federal student loans was passed, refinancing rates plummeted.  This was a great time to refinance…and we did, a second time. 

2. Research lenders

Ok, so now you have decided that refinancing your student loans is right for you.  The next step is to do…more research!  This is right up the alley of most physicians as they have spent a lifetime studying.  There are multiple avenues for researching lenders.  Here are a few things to consider when researching lenders.

Reputation

The first aspect to consider would be the loan servicer’s reputation.  Much of this can be word of mouth, but many loan servicers will have reviews online.  Research their customer service.  Are they easy to work with?  Do they readily help correct issues and concerns?  Are they an accredited loan servicer?  Many of these questions can be found on their website.  You should research other sites to determine the experience customers have refinancing their loans.  You are likely refinancing hundreds of thousands of dollars…they should roll out the red carpet for you, seriously.

Interest rates

This is vitally important as it could save you tens of thousands of dollars as well.  Prior to refinancing my federal student loans, my federal interest rate was approximately 7%.  Following my first refinance with Laurel Road, my interest rate dropped to 4.4%.  I later refinanced again with SoFi and dropped my interest rate even lower to 3.2%. 

Now is a great time to refinance with interest rates being at an all-time low.  Some loan servicers offer rates in the 2% range.  This is spectacular.  Shop and compare various lenders, look at both their fixed and variable interest rates as well as their loan periods (i.e. 5 year fixed, 10-year fixed, etc.)  For a medical student debt of $300,000, the difference between an interest rate of 7% and 3.2% is approximately $11,400 annually.  That really adds up.

Interest rates…arguably the most important factor to consider.  Shop around extensively before committing to a lender. 

Incentives

This is slightly less important but still a factor.  Many loan servicers offer incentives if you are being referred.  These incentives include money placed towards your student debt upon completion of the refinancing process.  For most, this can be as much as $200-$500 dollars for being referred.  This is free money.  Don’t leave it on the table. 

Another incentive to research is ‘in-training’ payments.  For my current loan servicer, SoFi, this means as a current resident/fellow, the minimum monthly payment is $100.  This allows ample safety for unexpected financial hardships.  I would encourage everyone to have an emergency fund for this very reason.  Paying more than the minimum is important toward eliminating your debt fast, however, it is nice to have a safety blanket should financial disaster strike while in training. 

Grace period

The grace period is a set amount of time that you have following graduation from residency or fellowship.  Usually this is a 6-month period where your loan payments will remain low.  This is to allow new attending physicians time to adjust to their new incomes before standard repayments begin.  For individuals with six-figure debt, the standard payments can range from $4,000-$8,000 monthly.  Standard payments vary widely based on loan servicer, debt size, and loan duration.  Having protected time to confirm your budget is prepared for these payments can help alleviate the anxiety of this transition. 

3. Choose a lender

Now that you have done your research, its time choose a lender and apply.  At this point you have found an interest rate that looks appealing and decided to complete the initial application.  This process is relatively straight forward.  You will start by creating an account with the lender on their respective website.  The account information needed is relatively generic. 

Application and soft credit pull

The application process here requires a few documents, as well as some demographic data on yourself.  This process can usually be completed over a half hour.  You will usually need to know your loan total (or the amount you wish to refinance).  You will also need to have proof of current full-time employment or training.  Other documents can include your W-2, government issued identification, tax returns, proof of graduation, etc. 

Following completion of the initial application, you will submit your documents.  This process will include a ‘soft credit’ pull.  This means they will electronically review your credit information to determine if you are a candidate for loan refinancing.  This credit pull is necessary, but will not affect your credit score.  The credit review will often trigger an email acknowledging that a third part has requested your credit information.  Expect this.    

At this stage of the process, it is still appropriate to research other lenders.  The soft credit pull does not affect your credit score.  If you find a more enticing offer, you should feel free to pursue it at this time. 

Once the soft credit pull has happened and the loan servicer has given you a preliminary offer, see if it met your expectations.  Consider taking their offer to other lenders.  Will they match this offer?  The worst they can say is no. 

4. Complete the application

You are on the home stretch.  By this point you have chosen to pursue loan refinancing with a private lender.  You have chosen the lowest interest rate, the best loan terms, and a reputable servicer.  You should have also completed the initial application along with a soft credit pull.  The loan servicer has given you a preliminary offer.  What’s left?

Hard credit pull

All that is left is the remainder of your application and a ‘hard credit’ pull.  The rest of the application can sometimes be tedious.  The loan servicer will need certain documents uploaded.  Some of these documents I have previously commented on.  These often include your most recent W-2, your most recent paystubs (usually 3 months’ worth), tax returns, proof of residency, proof of graduation from an accredited institution, and proof of current loan status.  In my experience, this can require a phone call or two to the servicer to make sure all is in order.  It is here that I encourage you to confirm all incentives are applied to your application.  You can also consider refinancing with a co-signer to determine if you qualify for lower interest rates. 

Following completion of the full application, another submission will occur.  The loan servicer will communicate with you the need for a ‘hard credit’ pull.  This is the credit inquiry that could potentially influence your credit score. 

After all this has occurred, there will be a brief waiting period.  This allows the servicer to review all records, confirm all criteria are met, and formally offer you a final interest rate.  In a few days they should contact you acknowledging your loan application is complete.  The only thing left is your signature. 

5. Final documents and loan payoff

With your formal offer in hand, only a signature remains.  The loan servicer will provide you with paperwork for review.  This is the entire contract.  This contract includes all the loan terms.  Triple check that all is correct.  Is your identification information correct?  The loan amount correct?  The interest rate correct?  Can you confirm receipt of all incentives previously offered? 

If all appears in order, then sign the hard copy, return it to the servicer…and celebrate! 

Success!

All that is left to do is wait for the formal loan payoff and celebrate all the money you just saved by refinancing.  The loan payoff process generally takes a few days.  During this time, your new loan servicer will reach out to your prior loan servicer and pay off the remainder of the loan.  You will receive confirmation that this transaction occurred.  A subsequent email will help you set up an account with your new loan servicer.  These accounts allow you to view your loan balance principal, as well as interest accrued and interest rates.  This site will be your new best friend. 

Congratulations, you have successfully refinanced your student loans!  This is worthy of celebration.  You saved yourself tens of thousands of dollars in the long-run.  The journey doesn’t end here.  Keep your eyes peeled for further drops in interest rates.  There may come a time where you can capitalize on even lower rates.  Seeing as you have refinanced, you are no longer eligible for PSLF, so refinancing again is a no-brainer! 

Stay Motivated!

The Motivated M.D.

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Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.