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Refinancing After Medical School – A Few Things to Keep in Mind

There always seems to be more to do than time to do it in. That feels especially true as you transition into residency. Rounds to make. Notes to write. Paperwork to complete, all while trying to balance life at the same time. Everything can seem incredibly time sensitive and it is understandable to want to take steps to seemingly simplify life in one form or another.

For those with loans one step could be refinancing.

Refinancing is the process where you take out a loan from a financial institution and use that loan to pay off your loans with the federal government. SoFi, Evervest, Common Bond, SPLASH Financial are all examples of companies that offer student loan refinancing options. If you haven’t heard of any of them before, don’t worry, they’ll be in your mailbox soon enough.

On the surface it looks like an easy decision to make. You are usually promised a lower interest rate, a known repayment term, and the potential to save thousands of dollars over a finite number of years. No more worrying about repayment time frames, administrative hurdles, or a fear of the unknown…at least on the surface.

First things first, take a step back and remember, you have a 6-month grace period after graduation to figure things out. On top of that, interest rates are still on pause through at least September 30th, 2021.

Which means that even for those who graduated in March, you have until October 1st before you have to begin making payments on your loans. For those who graduated in May or June, you don’t have to really think about making payments until November or December.

Any time something looks like a one size fits all solution to an issue (i.e. if you have loans, refinance), there are a few more considerations that need to be made.

  • Federal loans typically do have a higher interest rate, but with that higher interest rates comes a few safety nets that can be incredibly helpful as you are starting your career. Some of these safety nets are:
    • Mandatory Forbearance during training
    • Repayment flexibility
    • Access to Public Service Loan Forgiveness
      • Yes, this program is still around. Still tax-free and still only eligible to federal borrowers.
    • There is no turning back. You cannot undo a refinance to a bank, unless you pay off the bank. Remember, you just paid off the government with a private loan; the Department of Education isn’t going to give you the loans back.
    • Many lenders max out their refinancing loans at $300,000, and those who have higher caps typically charge a higher interest rate.
    • There is always a catch. Keep in mind that lower interest rates are usually associated with a shorter repayment term. The shorter the repayment term, the higher the monthly payment.
    • You are expected to make payments when they ask. You don’t get additional periods of forbearance or the ability to turn off payments. If your pay is decreased, or if you are in between jobs, it doesn’t matter to a bank.

This list can get even more complicated depending on your portfolio of loans, your marital status, and your career trajectory. A common misconception about educational debt is that it is all about the interest rate, when in fact the rate is just one of the many factors that have to be planned around when creating a repayment strategy.

Another reason to pause is that we are at an exciting time in the student loan industry from a legislation standpoint. The Biden administration and the Democratic Party made it clear during the 2020 campaign that student loan assistance is a priority. This may come in the form of forgiveness, or perhaps a continuation of the current 0% interest policy. We do not know what, if anything, will happen, but it makes sense to leave the door open, just in case.

Once again, if you are quick to refinance, you would miss out on anything the federal government decides to do to help borrowers of federal student loans.

The bottom line is to remain flexible, and make informed decisions about your loans. Don’t rush into anything because it worked for someone else. Everyone’s situation is unique, and it is important that you find your solution.

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