The typical medical school debt balance for 2015 graduates amounted to about $183,000, according to the Association of American Medical Colleges. What’s more, a third of graduates also had to deal with the debt they had accumulated during their undergraduate studies, with an average balance of $24,000.
To make matters worse – the ever-increasing costs and decline in physician reimbursements have made student loan repayment a real challenge. In fact, it’s fairly common for medical graduates to place their student loans into forbearance while they complete a residency. But that only racks up interest and adds even more to their already-overwhelming medical school debt.
So, is there a way out of the vicious circle of debt accumulation for physicians? Yes, one of the ways to break free is by refinancing student loans. Refinancing lets you take out a new loan with a private lender and use these funds to pay off existing loans.
Because you’re effectively creating new debt, you’ll have the chance to adjust your repayment schedule and even get a lower interest rate. There are certain eligibility requirements that vary depending on your current income and credit history.
When you switch med school debt from federal loans to private loans, you basically forego access to federal repayment plans. This includes loan forgiveness for doctors. This means refinancing makes the most sense for medical school debt with high interest. Especially since private lenders are more likely to offer great interest rates on refinanced student loans (if you qualify).
As long as you qualify – you may be able to save a lot of money from high balance of medical school debt. In fact, you might even opt to refinance only the medical school loans with highest interest rates you took out. This will leave you with a new loan that accrues less interest with the added benefit of keeping federal protections for student loans with reasonable rates.
All things considered, refinancing student loans is definitely a worthwhile strategy. However, make sure it’s right for you before deciding on a plan of action. There are various things you can do to improve your chances.
Keep in mind that when you refinance your student loans, they are no longer eligible for the IBR or the PSLF program. Similar to other student loans, SoFi and DRB loans don’t go away if you file for bankruptcy. Refinancing subsidized loans from undergraduate, if you have any, may not be the best option as that subsidization will go away. Undergraduate loans are generally at a much lower rate, so that’s not really an issue.
Another option to consider is rolling your student loans into your mortgage. If you can turn a high-interest, non-dischargeable in bankruptcy, non-deductible student loan into a low-interest, dischargeable, deductible mortgage or home equity loan, that may be your best bet.
When you refinance student loans to a lower interest rate – you can end up saving thousands of dollars over the course of your career. However, in some cases like refinancing federal loans to private loans you can lose special repayment plans that can help you in a time of need. Make sure you can afford your new payments if you refinance, and take the time to shop around and get rates from several different providers. Need help? Talk with a Financial Advisor.