Make a plan to manage your student loans today and build a balance approach to paying them off.

With a Student Loan Repayment Plan, you can...

• Get organized: We help you gather your thoughts and your documents in one place.

• Set a realistic goal: Think through the who, what, and when of your student loans and other debts.

• See your options clearly: Understand the pros and cons of consolidating, refinancing, etc.

• Know what it takes: Find out how much you need to be paying each month to manage your debt.

• Find out what to do: Gain step-by-step instructions to become debt free.

2020 Guide to Refinancing Medical School Student Loans

Refinancing medical school debt can lower interest rates and lower payments saving young physicians thousands of dollars over the life of their loans. According to the Association of American Medical Colleges (AAMC), four out of five doctors will graduate with medical school debt averaging $180,723, so a 1% lower interest rate could save the average new doctor $1,800 a year. While the interest savings and lower payments may sound appealing, physicians should use caution when refinancing federal direct loans, which have some protections that private lenders usually do not offer.

How to Refinance Medical School Loans Successfully

Refinancing a student loan means getting a new loan to pay off an old one. The key is to get better terms—a lower interest rate or a lower payment—on the new loan without sacrificing protections, pledging more collateral or adding a co-signer to the new loan. A sound refinancing decision requires physicians to know the costs and benefits of their current student loans and be able to compare them to the costs and benefits of options for new loans.

1. Understand Current Medical School Debt

Medical school student loans come in two flavors: private and direct. Federal direct loans, also known as “Ford loans”, are issued by the federal government and come with some benefits and protections that private loans may not offer, including:

• Deferment allows a physician to stop making loan payments during residency, fellowship, a period of economic hardship, unemployment, active duty military service or disability. While the government may make interest payments on Federal Perkins Loans, Direct Subsidized Loans and Subsidized Federal Stafford Loans, interest payments on other federal student loans is capitalized, or added back to the loan.

• Forbearance is similar to deferment but payments may also be reduced as well as suspended. Forbearance periods are usually shorter than deferment, and eligibility includes financial hardship (like job loss), illness, and cases where a physician’s total monthly student loan payment exceed 20% of total monthly gross income.

• Income-based repayment plans make it easier for young doctors and physicians in less lucrative specialties to repay their med school loans by requiring payments based on “discretionary income” which is only a portion of gross earnings. Examples include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Contingent Repayment (ICR) and the original Income Based Repayment plan (IBR) which is a good option for physicians seeking loan forgiveness under PSLF. For details, see the DOE’s page on repayment plans.

• Consolidation lets a physician combine several federal education loans into one loan whose interest rate is the weighted average of the original loans. Since the maximum repayment term for a consolidation loan is 30 years, it may result in a lower payment but It will not give a lower interest rate. In fact, the rate may be slightly higher after consolidation since the weighted average rate is rounded up. The main benefit of consolidation is to simplicity: one loan, one payment. Consolidation may also make certain loan balances eligible for PSLF (see Forgiveness).

• Discharge relieves a physician’s obligation to repay federal student loans in the event of death (including the death of a parent PLUS borrower) or total and permanent disability.

• Forgiveness, also known as Public Service Loan Forgiveness (PSLF), allows doctors who work for certain tax-exempt non-profit organizations and federal, state, local or tribal government healthcare providers to be relieved of most federal direct student loan debt after making 120 qualifying monthly payments. Federal Family Education Loans (FFEL) and Federal Perkins Loans do not qualify for PSLF but it is possible to refinance them into a Federal Direct Consolidation Loan which may qualify for forgiveness.

2. Evaluate Options for Refinancing Med School Debt

Physicians have three options when it comes to refinancing and consolidating student loans.

• Refinance one or more private student loans into a private loan with a bank for a lower interest rate or a lower payment. Since private loans offer limited or no protection for doctors, this option poses the least risk since there’s usually nothing to lose.

• Consolidate two or more federal direct loans into one new Direct Consolidation Loan through the U.S. Department of Education at StudentLoans.gov. Don’t be fooled by look-alike sites. The D.O.E. is the only agency that can consolidate student loans. This option poses some risk to physician borrowers since certain loan-based protections may be lost in the consolidation process.

• Refinance one or more federal student loans into a private loan by asking a bank to issue a new loan to pay off the original loans. While this option offers physician borrowers a lower interest rates or lower payment, it poses the greatest risk since physician borrowers stand to lose most or all of the protections that come with federal student loans.

3. Shop for the Best Banks for Refinancing Medical School Student Loans

4. Compare the Costs, Benefits, Advantages and Disadvantages of Student Loan Refinancing Options

Refinancing student loans is a personal decision that each physician must approach with caution since the commitment is huge and the consequences will last years and cost tens of thousands of dollars. As you approach this decision, ask yourself:

• What benefits will I gain or lose when I refinance (especially if refinancing federal student loans into private student loans)?

• If interest rates rise, how will that change impact my ability to make payments on my loans?

• What happens if I become disabled or experience a period of joblessness?

• How will this refinance impact my eligibility for Public Service Loan Forgiveness?

• Am I going to be eligible for any discounts due to making automatic payments on my loans?

Medical School Student Loan Management Tips for Interns & Residents

1. Avoid deferment and forbearance. Physicians and med students who are having trouble making student loan payments because of low income or high costs of living should consider an income-based repayment method rather than going into forbearance or  deferment. If you are going to qualify for PSLF, each of those payments will count toward the 120 qualifying payments, so you will receive forgiveness on a greater loan balance.

2. Pay off high interest rate loans first. This seems obvious but many physicians still overlook it. When deciding which loan to repay first, remember that the interest on home mortgage debt is tax deductible while most physicians will not be able to deduct the interest paid on student loans.

3. Stay on top of your loans! While many physicians will refinance their student loans right out of medical school, most will overlook opportunities to re-refinance later on when their cash flow improves. Look at your student loans at least once a year and ask yourself, “Are these the best rates and terms I can get right now?”

Guardian and its subsidiaries do not issue or advise with regard to student loans.