Refinancing student loans during medical school

[Last revised December 2020)

There are a few good options for refinancing your federal student loans and their unreasonably high interest rates into something more manageable during residency (currently: Laurel Road, SoFi, and Splash, discussed at length here).

Once you’re an attending, even more options enter the fray (enumerated at length here). Ideally though, unless you didn’t know you weren’t planning on going for PSLF, you’d have refinanced earlier in residency to maximize your savings.

But medical students have up until now been relegated to getting loans, not refinancing them. Recently, Laurel Road squeezed the competition into medical school proper: post-match fourth years can now apply for their student loan refinancing.

While you sadly can’t get a better interest rate earlier in your education, it does mean that the minute you get that match letter to prove you have a job, you can start the process. When you apply in March, Laurel Road honors the usual six-month grace period, so nothing changes in that sense compared with your federal loans. They require $100/month payments during training (residency + fellowship) after the grace period (which is much lower than the usual PAYE payment and won’t ever increase in size until attendinghood). By applying in March instead of July, you’d save around four months of capitalized interest.

A numerical illustration:
200k at 6.8% accrues around $1133/month in interest. Refinancing that to 5% would knock the monthly interest down to $833/month, thus saving you $1200 over that brief four month span. Neat.1

Also of potential interest, Laurel Road also offers a referee bonus of $300 for readers of this site if you refinance via one of the links on this page.

I’ve written at length about refinancing your student loans, but the short of it is that payments during residency are thus low to nonexistent, and you can save a lot of money even with a mild interest rate reduction over the life of your loan in terms of interest accumulation. The potential downside is that you give up the option for loan forgiveness, both PSLF and the 20/25 year forgiveness made theoretically possible by IBR/PAYE. For low to average loan burdens or short residencies, that’s not a big loss. If you want to do pediatric endocrinology and borrowed $500k, obviously that’s a bigger consideration.2

If you were planning on forbearing your loans because you won’t have the cashflow to make steady payments, then you should almost certainly refinance regardless. Going for loan forgiveness only make sense when you’ve been making years of low monthly payments during residency. For someone forbearing, refinancing saves thousands over the course of even a short residency.

It’s worth it to sit down for a few minutes with a loan calculator and some ideas about your residency, fellowship, and early attending pay to see how much you’d pay over 10 years of income-driven repayment, 20-25 years of IBR/PAYE, or with private refinancing. For many students, refinancing is the right choice financially as well as the most financially liberating during residency (and much much better than forbearance!). Doing so as early as possible is prudent, especially while interest rates remain low. Don’t forget, if the economy were to tank again and rates drop further, you could always refinance again (all of the student loan companies currently operating offer zero cost refinancing programs without origination fees or points required).

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