Tuesday, March 21, 2017

Medical School Student Loan Consolidation And Refinancing: A Primer

Today's post is a repost from Future Proof, MD covering the basics of medical student loan consolidation and refinancing:

If you are like the majority of medical school graduates out there, you're probably saddled with a good amount of student debt. I know I am. If you are like me, you may have gathered multiple loans from several different lenders over your many years of schooling. Now that you're finally done with school and entered the workforce, you may have been bombarded with emails inviting you to consolidate/refinance your loans. So let's talk loan consolidation/refinancing.

First, let's address what consolidation and refinancing are.

  • Consolidation allow you to combine multiple loans into 1 loan, resulting in just 1 monthly payment instead of many. For example, if you have only federal loans and go through federal loan consolidation, you will end up with 1 bill but your interest rate will simply be a weighted average of all the different interest rates of the loans you consolidated.
  • Refinancing, on the other hand, allow your to consolidate your loans as above. But the difference is that your new interest rate will be dependent on your credit score and history rather than what the interest rates on your old loans were. In essence, you are applying for a new loan with new terms to pay off your old loans - analogous to a "balance transfer" between credit cards. In reality, "consolidation" and "refinancing" are used interchangeably. If you are getting an offer to "consolidate" your loans through a private lender, they're talking about refinancing. For the purpose of our discussion, I will use the term "refinance".


  • 1 monthly payment. This is probably the biggest benefit of refinancing your loans. Instead of making multiple monthly payments to multiple lenders, you get 1 bill and 1 payment.
  • You may qualify for a lower interest rate. The standard interest rate for federal student loans are fixed at 6.8%. If you have good credit and income, it's likely you will qualify for a lower interest rate. I say "may" because when I went through SoFi (the largest student loan refinancing lender) to check what they would do for me, my refinancing offer was less than generous (see figure).
  • You can lower your monthly payment. This can result from you getting a lower interest rate on the new loan, by renegotiating your repayment term (15 or 20 years instead of the standard 10 years for a standard repayment plan), or a combination of both.
  • Choice of variable vs. fixed interest rates. Choosing a variable interest rate will benefit those who are planning to pay off their student loans rapidly.


  • Refinancing your loans with a private lender will make you ineligible for federal loan forgiveness programs such as Public Service Loan Forgiveness (PSLF), and other benefits such as Income Based Repayment (IBR), deferments and forbearance.
  • Your interest rate may go up if you choose a variable interest rate plan. Most variable interest rate loans have a cap as to how high the interest rate can reach, but it's usually more than the standard 6.8% fixed you would get through the government.
  • It's a permanent decision - if you ever leave the federal system, there is no recourse if you decide later that you've made a mistake.
  • Fees - this is a minor consideration for those with a large loan balance, but there may be fees associated with a private loan refinancing application.
  • So after considering many of the above factors, I ended up consolidating my loans through the government. I am currently on Income Based Repayment (IBR) with plans to eventually qualify for Public Service Loan Forgiveness.
Head on over to Future Proof, MD to see the table with statistics on medical education debt loads as well as many other great posts on personal finance for medical professionals. 

For those of you currently in medical school, I would also add that I strongly encourage you to seek out grants, stipends, and scholarships to supplement your financing. There are many tied to specific student backgrounds (i.e., if you come from a minority group), or for those willing to perform public or military service for some time after finishing training. Personally, I can attest to this being a very valuable approach as a single scholarship application that I knocked out one weekend evening ended up covering my tuition for an entire semester! Another example is author Ramit Sethi who funded his entire Stanford undergraduate education on scholarship money alone. If you need a primer on personal finance overall, his NY Times bestselling book I Will Teach You To Be Rich is a great place to start:

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