Student loan debt has exploded over the past decade, climbing to more than $1.2 trillion and becoming the largest consumer liability after mortgages. Average debt for recent undergrads and graduates is estimated at about $35k and $58k respectively. Having that much debt can cause a lot of stress and make it tough to achieve goals such as buying a practice, being able to afford a home, or saving for the future.
So it's little wonder that doctors these days are looking for ways to quickly and efficiently dispose of student loans. Refinancing is one of those ways. When you refinance high interest rate debt at a lower interest rate, you can save money on total interest and either lower your monthly payments or be done with your loans sooner. For example, at SoFi (a leading marketplace lender and the largest provider of student loan refinancing), the average medical borrower saves just over $29K1.
Sounds like a no-brainer, right? For some borrowers, it is. But it's not for everyone, so it's important to understand up front when it makes sense to refinance your medical school loans -- and when it makes sense to hold off or pursue other strategies.
Here are 3 signs you may be a good candidate for student loan refinancing:
- Your student loans have high interest rates.
Federal loan interest rates for borrowers in graduate or professional degree programs (like medical school) are much higher than the rates for undergrads -- and it's pretty common for medical borrowers to have to dip into even higher interest rate private loans, as well. Also, if you took out federal unsubsidized or PLUS loans between 2006 and 2012, you got an unusually high interest rate versus other loan rates out there (see below).
With prevailing interest rates still at very low levels, it's possible to get a much lower rate through refinancing.
- Your financial situation has improved since you took out the loans.
Most doctors have to spend a few years after medical school paying their dues before the higher income starts to kick in. If you take great care of your credit during that time, you could set yourself up for refinancing success, because a higher credit score and income level are key to helping you qualify for a lower interest rate.
And if you expect to stay on an upward financial trajectory, you might even consider refinancing with a variable rate student loan. Variable rate loans typically offer lower interest rates than fixed rate loans (for example, SoFi's variable rate loan offers rates as low as 1.90% APR with AutoPay)2. However, the rate is tied to prevailing interest rates, which are very low today but should go up over time. The upshot is that these loans are usually best suited for qualified borrowers who intend to pay off their loans at a relatively fast pace.
- You don't benefit from federal loan protections.
Refinancing high interest rate private loans can be a pretty easy decision to make, but when it comes to refinancing federal loans, there are some considerations to be aware of.
Some federal student loans offer certain benefits and protections for borrowers, which do not transfer to private lenders through the refinance process. These benefits include potential loan forgiveness (for things like becoming a teacher or working in the public sector), deferment and forbearance (although some private lenders do offer the latter), and income-driven and graduated repayment plans. If you expect to qualify for or use any of these things, it's usually a safer bet to leave federal loans where they are.
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If refinancing sounds like it might be right for you, the next step is to do a little research -- check out several private loan providers to compare interest rates and other features.
SoFi, for example, offers competitive rates as well as career and job search mentoring, entrepreneurship support and other member benefits. Which means you may gain more than cost savings when you refinance your student loans.
SoFi will be hosting webinars on Tuesday, November 17 from 5:00-5:30pm EST, Wednesday, November 18 from 1:00-1:30pm EST, and Thursday, November 19 from 5:00-5:30pm EST to answer questions about student loan refinancing and how you can save on your student debt. Please register here for a webinar: https://attendee.gotowebinar.com/rt/8801574458060502018
MSMS members receive a $500 welcome bonus when they refinance through SoFi.com/MSMS.
ABOUT SOFI
SoFi is a leader in marketplace lending, with over $4.5 Billion in loans issued to date. We help early stage professionals accelerate their success with student loan refinancing, mortgages, mortgage refinancing, and personal loans. Our nontraditional underwriting approach takes into account merit and employment history among other factors, so we offer products that can't be found elsewhere.
- Average savings calculation is based on all SoFi Doctoral DO borrowers who refinanced between 2/1/15 and 6/16/15. Prior to refinancing, borrowers taking 5 and 10-year terms had an average balance of $167,955 and lifetime payment of $243,128 at a rate of 7%, and borrowers taking 15 and 20-year terms had an average balance of $211,143 and lifetime payment of $311,395 at a rate of 6.89%. After refinancing, 5 and 10-year borrowers have an average lifetime payment of $201,750, and 15 and 20-year borrowers have an average lifetime payment of $309,250, based on a weighted average of new rates received across both types (fixed and variable) and respective loan terms with AutoPay. Savings calculation assumes no change in interest rates, on-time payments, and no prepayment of loans. Borrowers refinancing loans into longer terms typically forfeit savings for lower monthly payments.
- The APR on variable rate loans may increase after origination if the LIBOR index increases. SoFi's variable rates range from 1.90% to 5.20% (APR with Autopay). To qualify for the lowest rate you must have excellent credit and meet other conditions.