Medical school is expensive and getting more so every year. Meanwhile, federal student loans are still at above market rates (and many private ones are predatory). Combine the two and a new doctor will borrow more and then pay more for the privilege than any other time in history.
Over the past two years, historically low interest rates and a rebounding economy mean that private banks have re-entered the student loan business, particularly on the refinancing side.
As a student, you’ll generally just take the federal loans and wait until residency to do potentially do something about it. One new option for student loans is Citizens Bank (formerly Charter One), which may be helpful for those who don’t need to borrow heavily or as a supplement for federal loans so that you don’t have to borrow quite as much at high rates.
As a resident, your options are essentially limited to refinancing with DRB (or potentially LendKey or Earnest). DRB has a new (as of March 2015) resident refinancing program that is unique, practical, and affordable for residents ($100 a month). LendKey offers interest-only payments, which depending on your debt burden may be doable. Ditto for Earnest, which allows you to set arbitrarily long term lengths to make monthly payments affordable.
I wrote about refinancing as a resident at length in this post.
Otherwise, here is the complete picture for student loan refinancing.1
There are only a handful of options and applications are short (really short, ~5 minutes or less). Rate ranges are typically concordant and are as low as 1.9% variable across lenders. All quote you low rates assuming you’ll auto-debit from a new checking account that you’ll set up with them. Initial applications will result in a soft pull on credit (does not effect your credit score) and give you a preliminary rate, so if you have good cashflow and can otherwise afford your loans (i.e. you’re an attending), you’ll do yourself no harm by simply applying for refinancing from each company and seeing which one is willing to refinance you at the best rate:
Darian Rowayton Bank (always called “DRB”) is a Connecticut based bank, and was one the first big players to return to the student loan game along with SoFi. They currently occupy a unique niche in that in addition to conventional student loan refinancing for those with good debt/income ratios (i.e. attendings), they have a program specifically geared toward residents (where payments during residency are $100/month regardless of the total loan amount or your income). DRB refinances 100% of private and federal loans with a minimum of $5000 and no maximum, no origination fees, offer fixed and variable interest rates, and flexible loan term lengths. Refinancing after applying through the referral link above would net you $300 dollars.
SoFi (which stands for “Social Finance”) was the first company to make a name for itself in the current game of loan refinancing and the most likely to send you prequalification letters in the mail. The “social” refers to the fact the company originally funded loans at select institutions using money invested by school alumni. Since then the company has grown and begun using conventional financing, but they still claim that some community money makes it into every loan. Refinancing after applying through the referral link above would net you $100 dollars. SoFi has no special programs for residents, interest-only payments, etc. It’s straight up refinancing: minimum loan amount of $10k, variable and fixed rates, and must have graduated from an “eligible” school (depending on where you went, there may also be an origination fee, which is otherwise not typical among these options).
LendKey (formerly known as cuStudentLoans, where “cu” stood for credit union) is the only lender to offer interest-only payments. You can do the math with your own loans to see where that leaves you, but if you didn’t borrow too much, it could be even less than IBR (making it potentially affordable as a resident). While one should theoretically always put extra money toward paying down loans, having an interest-only option gives you some month to month flexibility, particularly if you’re transitioning from resident-money to attending-money and want to refinance—but don’t want to start paying a ton immediately. No origination fees, variable and fixed options available, but the maximum loan amount is $175k, which makes LendKey nonviable for big borrowers. If you owe only a little bit more, you could always refinance the full amount possible while paying down the remainder in a lump/quickly2. They quoted to me that an annual income of around $75k would be required to refinance the maxium $175k. If you apply with a cosigner, LendKey advertises their straightforward co-signer release program, which will help you parents get off the hook after a few years.
CommonBond is unique in that they offer a “hybrid” 10-year rate plan which is fixed for the first 5 years and then variable for the last 5 (essentially analogous to a 5-year ARM on your mortgage). The hybrid rate range doesn’t look particularly impressive, but one imagines that on an individual basis that the hybrid rate should fall somewhere between the variable and fixed rates and helps mitigate the anxiety of committing to a full variable rate (particularly if one hopes to be aggressive in paying down the loan). No origination fees, but there is an accepted/eligible school list. CommonBond also offers academic deferment if you decide to go back to school for that MBA. They also agreed to reimburse readers with $300 for using the above link.
Earnest has some interesting unique features compared with the other players. The main one is totally arbitrary term limits (up to 20 years). You want 10.5 years? You got it! What this means is that you can choose a term length and pay the monthly amount, or you can decide on a monthly amount and then pay that over the calculated term. In practice that makes Earnest a potential option for refinancing during residency. For example, if you refinanced a $200k loan at 3% for 20 years, your monthly payment would be $1000 (more than IBR but doable for some). Smaller loans make this option more feasible obviously, but even if you have a long term length, you can always pay down faster, so really the goal here is get the shortest term that you can afford for now and pay down aggressively as soon as possible. Other interesting features are biweekly payments (to help cut down on accrued interest) and the ability to quickly refinance/change between fixed and variable rates without charge or penalty. 3 So if you need to lower your payments because of tough times, they offer rapid refinancing at a longer term to make it happen (of course you’ll also pay more and probably have a worse rate, but hey). It also means that once you’re making more money and can afford to pay more per month, it may be worth refinancing again to get a lower rate (assuming the market hasn’t shifted). Loans start at $5000, no origination fees. Most but not all states are eligible.
Citizens Bank consistently refused to answer my emails, so I actually called up one of their “education finance advisors” to get some more information, who primarily directed me back to their website but did clarify that they offer nothing special (no interest-only payments, minimal flexibility, no grace period, nothing for residents). The maxiumum loan amount is $170k, also on the low side. Despite some questionable characters in the customer service department, one imagines Citizens to ultimately be similar to the others for those attendings with less than average debt. No origination fees. Fixed or variable. Co-signer release available. Minimum rates are currently a bit higher than competitors’ (e.g. variable 2.33% vs 1.90%), but since the advertised rates are typically desired by all and given to few, I wouldn’t necessarily rule them out on that alone.
Overall, the interest rate ranges offered by these companies are generally comparable. Typically when one lowers their rates, the others have followed quickly followed suit.4 The increasing competition in this space has been excellent for consumers, because the rates offered even a year ago weren’t that much lower than the federal ones. So, if you have several potential options based on your loan burden and your income, you might as well apply to all and see who gives you the best deal.5 Prelimary applications generally take 2-5 minutes, so there isn’t a big time investment in doing your due diligence.
Unless you work at qualifying non-profit institutions and are making qualifying payments toward achieving public service loan forgiveness (PSLF), there is essentially no reason to stay with federal loans given today’s interest rates if you qualify for private refinancing.
Bonuses: As mentioned above, I was able to convince several companies to provide a monetary incentive for you, dear reader, should you choose to refinance with them. I’m pretty pleased about that. In those cases, I would receive a smaller bounty as well and you’d effortlessly support me/this site.