Medical School Loan Refinance Guide

Written by: Matt Kuncaitis
Updated: 4/08/21

If you’re a current medical student, a new resident fresh out of medical school, or an established physician who still has student loan debt, student loan refinancing can help you lower your monthly payments. 

On the other hand, refinancing can end up costing more in the long run and leave you ineligible for benefits, such as expanded repayment options and loan forgiveness, which are available to federal student loan borrowers. 

How can you tell if refinancing will help you or hurt you? How much money might you be able to save by refinancing? This article answers those questions and more while serving as a simple guide to understanding your medical school loan refinancing options.

Who Should Refinance Their Medical School Loans?

Refinancing your student loans can change your monthly payment amount, repayment length, and interest rate. In certain combinations, these changes can yield financial benefits. In other combinations, it may cost you more in the end, even if you get the benefit of, say, a lower monthly payment in the short term. 

To understand whether medical student loan refinancing is right for you, you first need to examine the pros and cons of refinancing and reconcile each with your current financial situation and future plans. In general, people who should consider refinancing their medical student loans include the following:

Those Who Don’t Plan to Pursue Loan Forgiveness Programs

When it comes to federal student loans — those issued by the U.S. Department of Education — special consideration should be given before refinancing. 

This is because the only way to refinance these loans is to transfer the debt to a private lender. In doing so, you’ll no longer be eligible for any of the benefits associated with the federal student loan program. This includes a variety of loan forgiveness opportunities, such as Public Service Loan Forgiveness (PSLF), which forgives all remaining student debt after 120 qualifying monthly payments are made if you work in the public sector or for a nonprofit. 

For the most part, those who graduate from med school end up working in careers that disqualify them for loan forgiveness programs, but it’s worth checking into all such programs on StudentAid.gov first to make sure. Having all or part of your student loan amount forgiven is almost always a better option than refinancing through a private lender.

Those Who Don’t Need an Income-Driven Repayment Plan

When you refinance your student debt, the new lender will issue a new loan with new payment terms. You may have some choice as to what those terms will be but, once you decide, the terms are usually set in stone unless you refinance again. 

This matters because you will lose access to the multitude of repayment options offered by the federal government if you refinance your federal education loans with a private lender. This includes income-based repayment plans, such as Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE), which both offer forgiveness of any remaining loan balance after 20 years (25 years for graduate school). 

However, income-based repayment options aren’t generally useful unless you have a high debt-to-income ratio. That might apply to you if you took on a lot of debt during medical school and remain underemployed after graduation. If you’ve managed to secure high-paying employment as a doctor or physician, income-driven repayment plans may not going to apply. 

Those Who Can Secure a Better Private Student Loan

If you don’t qualify for any federal student loan forgiveness programs and you won’t need to make use of the various repayment options offered on federal student loans, or if you have private student loans, refinancing is often a wise decision. 

This is because your credit score and financial situation after leaving medical school are likely much improved from what they were while you were in school and taking out the loans. With a much better credit and income picture, lenders are inclined to offer you better rates and terms. 

If you can secure a lower interest rate or better loan terms by refinancing with a private lender, it’s generally advantageous to do so. It often means you’ll end up paying less over the life of your loan than you would have otherwise.

Is It Smart to Refinance Your Medical School Student Loans?

The short answer to whether student loan refinancing for your medical school loans is a good idea is: Probably. Medical school graduates tend to be high earners, so the special provisions associated with federal student loans often don’t apply. Further, the professional status of those with medical degrees often leads them to qualify for some of the best interest rates around. 

Among the benefits you might see when refinancing your student loans are the following:

Lower Monthly Payments

Refinancing can lead to lower monthly payments. This can be a huge boon if you are just starting your career and hope to save for a home purchase or other expenses. That said, lower payments from refinancing can result from a lower interest rate or a longer repayment period. The former saves you money not just monthly but also in the long term, while the latter can lead to you paying more over the life of your loan.

Suppose you have $150,000 in medical school debt at 7.5% interest. A 10-year repayment plan would mean your monthly payments are $1,781. Refinancing to another 10-year loan at 5% interest lowers those payments to $1,591 per month and saves you over $22,000 over the life of the loan. 

If you keep the same interest rate but extend the repayment period to 15 years, you lower your monthly payments to $1,391 per month but end up paying an extra $36,630 in interest. 

A lower interest rate combined with a longer repayment term may or may not result in paying more during the life of the loan. Look closely at the total repayment amount if you use this strategy to reduce payments

Faster Repayment Plans

If your goal is to pay off your student debt as quickly as possible, there are a few ways to work toward that end. Note that student loans generally don’t have prepayment penalties, so you can always pay more on any existing loan to pay it down quicker.

Refinancing to a lower interest rate tends to lower the total amount you’ll pay (unless you simultaneously extend your repayment period) and can help you pay off your loans even faster. It’s definitely worth refinancing if you’re trying to get out of debt quickly and you qualify for lower rates. 

During refinancing, you may also be able to shorten the repayment period. Sometimes, doing so comes with even lower interest rates and makes it that much easier to get the loan paid off quickly. 

One Student Loan Payment

If you’ve made it through medical school, there’s a good chance you’ve taken out more than just one student loan. You may have any combination of outstanding federal and private student loans. 

Loan refinancing can make managing your student debt that much easier by enabling you to pay it off with one monthly payment to one lender, instead of multiple payments. Note that if all of your student loans are federal loans, it’s free to consolidate them into a single loan with an interest rate that is the weighted average of the individual loan rates. 

If you don’t think you’ll get a lower rate by refinancing with a private lender or you don’t want to forego any benefits that might come with federal borrowing, look into federal student loan consolidation as an alternative to refinancing

Lower Interest Rate

When you initially took out student loans, you were probably a young college student with minimal credit history. You may have needed a co-signer and you probably didn’t qualify for the best interest rates. As a medical school graduate, however, your financial situation probably has improved. 

If your credit score is now higher than it was in your college days and your income is established and steady, there’s a good chance you will qualify for lower interest rates if you refinance. 

Even if you don’t want to change your monthly payment amount or loan term, getting a lower interest rate can save you thousands of dollars during the life of your loan and with minimal effort on your part. Because of this, it’s advisable for just about anyone to look into student loan refinancing to save money once their career is underway.

Is There a Downside to Refinancing Medical School Loans?

It’s not always in your best interest to refinance your student loans, however. Always do your due diligence when looking into your options. Compare your monthly payments, interest rate, loan repayment period, and the total repayment interest for each refinance offer you consider.

Some potential drawbacks of student loan refinancing are as follows: 

Paying More Over the Life of Your Loan

If you aren’t careful, you can pay more over the life of your loan by refinancing. To better understand how this might happen, here’s an example: A recent medical school graduate has a student loan balance of $100,000 with a fixed interest rate of 7.5%. Under a 10-year repayment plan, their monthly payments are $1,187. The total paid over the life of the loan under this plan will be $142,442.

Now suppose this student refinances their loan to lower their monthly payments and interest rate. They are considering three refinancing options: The first lowers the interest rate to 6% and keeps the repayment period 10 years; the second lowers the interest rate to 5.5% but extends the repayment period to 15 years; and the third offers a 10-year loan with a variable interest rate starting at 5%. 

Here’s how the math breaks down for each scenario:

  • Option 1 (6%, 10-year): Monthly payments become $1,110 and the total paid over the life of the loan is $133,225.
  • Option 2 (5.5%, 15-year): Monthly payments become $817 and the total paid over the life of the loan is $147,075.
  • Option 3 (5% variable rate, 10-year): Monthly payments are initially $1,061, and the total paid over the life of the loan is $127,279 only if the interest rate doesn’t change. However, variable rates often do. It could even rise above the original loan rate.

With Option 1, the borrower lowers their monthly payments and saves money over the life of the loan. Option 2 results in paying nearly $14,000 more, so this should only be considered if lowering monthly payments reduces your current financial hardship. 

Option 3 has the potential to be the best deal, but it’s risky since the interest rate is variable. It could even end up costing more than any of the other methods. That said, if the variable rate starts going too high, the borrower could refinance a second time. 

Impact on Credit Score

When a lender performs a credit check, it can negatively impact your credit score. If you’re looking to refinance, see if prospective lenders will do a soft credit pull to provide an estimate of what rates you qualify for (a soft credit pull won’t impact your credit score). 

While a single credit pull might only lower your credit score by five points, multiple credit checks can add up quickly. If you plan on applying for a car loan or home loan or other financing in the near future, it can make sense to hold off on student loan refinancing until afterward.

Loss of Borrower Benefits

As mentioned, particularly if you have federal student loans, you should consider all of the borrower benefits associated with those loans before refinancing. As a medical school graduate, it’s less likely these benefits will apply to you in any significant way, but you should always check to make sure you aren’t overlooking needed flexibility or even “free” money. 

You can’t turn private loan debt back into federal student debt once you refinance federal student loans with a private lender. Federal student loans come with a multitude of programs designed to help borrowers. These benefits include the following:

  • Income-based repayment options: Federal student loans have the largest variety of repayment options, and it’s free and easy to change your plan. This includes income-based repayment plans that adapt your payments to your income.
  • Easier forbearance and deferment: It tends to be much easier to qualify for loan forbearance and deferment through the federal student loan program than through private lenders. This includes the forbearance received by all federal borrowers during the COVID-19 pandemic.
  • Loan forgiveness programs: The federal government also offers many different loan forgiveness programs, such as PSLF, that can discharge all or part of your loan debt if you work in the public sector or for a nonprofit.

What Are the Best Medical School Loan Refinancing Options?

CollegeFinance.com can connect you with resources and lender reviews to help you make decisions about refinancing to pay off your medical school loans quicker and/or with less interest.

Lender refinance options include:

Laurel Road

This popular lender has a 4.6 rating on Trustpilot and offers student loan refinancing with five-year, seven-year, 10-year, 15-year, and 20-year repayment terms. Both fixed rates and variable rate loans are available, and you can check your rates quickly online. 

CommonBond

CommonBond allows you to view rates in moments without commitment or credit score impact. These loans feature up to 24-month forbearance over the life of the loan, no prepayment penalties, and no origination fees.

PenFed

PenFed Credit Union prides itself on having some of the lowest rates around. Current fixed rates start at just 2.99%. Applying is quick and easy online,so you can check your eligibility now. 

Earnest

With a 5-star Trustpilot rating, Earnest has been used by over 130,000 clients to refinance $11.6 billion in student loan debt. You can check rates on the site with a soft credit pull in just two minutes. Earnest also offers an additional rate discount of 0.25% if you sign up for autopay. 

Let CollegeFinance.com Help You With Medical School Debt Options

Student loan refinancing has the potential to save you money and allow you to pay off your medical school debt faster. However, it’s important to always do your research and know what you’re getting into. In some cases, you might be better served with your current loan, and you may lose out on perks when you move federal student loan debt to a private lender. 

At CollegeFinance.com, we can help potential and current borrowers understand loan terms, learn more about federal and private lenders, explore loan options, help them with the application process, and more.