Should I Refinance My Medical SchoolStudent Loans?

According to the US Department of Education, the total amount owed in federal student loans was $1.37 trillion in 2017, and education costs continue to rise.¹ Many people pursuing a college education may find themselves taking out student loans and may also wonder if they should refinance their student loans to save money on interest. 

The total amount owed in federal student loans was $1.37 trillion in 2017.

Here, let’s look at what refinancing student loans means, how you can qualify, and how you can decide if this is a good financial strategy for your situation.

What Is Student Loan Refinancing?

Student loan refinancing is a strategy that involves swapping your current student loans with a new loan with a potentially lower interest rate. Some government refinance programs simply aggregate your current interest rates and it comes out to a similar rate and costs your ability to snowball your payments. Keep in mind, that you don’t get rid of any debt by refinancing, but you have the potential to save money on interest if you qualify for a lower interest rate. In some situations, this could save you thousands of dollars when repaying your loans.

Student loan refinancing is offered through a number of private companies, and they offer both fixed and variable interest rates. Fixed interest rates mean that when you refinance, your interest rate is determined by the length of the loan. Variable interest rates can fluctuate throughout the life of your loan, and they depend on a number of factors. Each lender can give you more information about their specific fixed and variable interest rates. We strongly recommend you stick with fixed-rate loans to avoid surprises.

How Do You Qualify for Student Loan Refinancing?

When looking to refinance your student loans, there are a few qualifications to consider to determine whether or not it makes sense for your situation.

First, you generally need to wait until after you finish school to refinance your student loans.

Also, your new interest rate will depend on your credit, so first making sure that your credit score is solid will not only help your overall financial health, but it may also help you qualify for a lower interest rate. If you don’t have a longstanding credit history, you may need to have a cosigner refinance your student loans. Remember student loans are unsecured debt so rates are generally high because students don't have a credit history or collateral for banks to look at.

Lenders will also consider both your income, and your debt-to-income ratio, or DTI ratio. Income refers to how much money you are earning and lenders like to see that you have enough income to comfortably repay your loans. Your DTI ratio refers to how much debt you have compared to your income. The higher your DTI, the harder it may be to qualify for a refinance.

Lenders may also consider your total student loan balance. This will depend on each lender, but some have both a minimum and maximum loan balance that they’re willing to refinance. 

Now, let’s look at when refinancing your student loans makes sense for certain situations.

Lenders will also consider both your income and your debt-to-income (DTI) ratio. Income refers to how much money you are earning, and lenders like to see that you have enough income to comfortably repay your loans. Your DTI ratio is how much debt you have compared to your income. The higher your DTI, the harder it may be to qualify for a refinance.

Lenders may also consider your total student loan balance. This will depend on each lender, but some have both a minimum and maximum loan balance that they’re willing to refinance. 

Now, let’s look at when refinancing your student loans makes sense for certain situations.

Should You Refinance Your Student Loans?

The question of whether you should refinance your student loans depends on your unique financial situation, but there are some scenarios when refinancing makes more sense than others.

First, we have to assume that you qualify for a refinance. Based on the criteria listed above, you may or may not qualify, and that will help you determine whether you should refinance your student loans. Also, the most important consideration is whether you will qualify for a lower interest rate than you already have. If not, it’s probably not worth the time and effort of refinancing, because you will only save money if you are paying a lower interest rate. 

Next, you should consider the types of student loans you have. You may want to refinance if you have high-interest private student loans, but if you only have federal loans, refinancing might not make sense. Many federal student loans offer benefits such as Public Service Loan Forgiveness (PSLF) that most healthcare workers qualify for, temporary student loan deferment and forbearance, and income-driven repayment plans. Check out the terms and options for your loans because if you refinance federal student loans with a private lender, you may lose some of these benefits.

Lastly, you should consider your overall financial health. If you have other high-interest debt, such as credit card debt, paying off those debts should be your top priority before considering refinancing your student loans. Not only will paying off this debt faster improve your credit score, but it may also save you more on your monthly payments than refinancing lower-interest student loans may.

If you are thinking about going for PSLF, make sure your refinance qualifies as private bank loans will not. Also, if you've been making payments towards PSLF, it used to be an issue where refinancing caused borrowers to restart the entire 120 payments over. 

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