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Overview of Refinancing Medical School Loans

Overview of Refinancing Medical School Loans
Rebecca Safier
Rebecca SafierUpdated August 23, 2022
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With four years of medical school costing an average of $250,000 or more, nearly three in four medical students have to take out student loans to cover the cost. According to the Association of American Medical Colleges, the median debt among medical-school students who borrow is a whopping $200,000.Refinancing medical school loans is one strategy for taking control of your debt. Through refinancing, you may be able to lower your interest rate, which could result in significant savings over the years. You don’t have to wait until you’re a full-fledged doctor or other healthcare professional, either. Some graduates choose to refinance their student loans in residency to take advantage of better rates. Let’s take a closer look at medical school loan refinance, including when it makes sense to refinance–and when it doesn’t. 

What Is Student Loan Refinancing?

Student loan refinancing involves exchanging one or more of your current student loans for a new one. Why would you want a new loan? Well, if you have good credit, you might be able to qualify for a better interest rate than you have now. Let’s say you owe $200,000 in medical school loans with an average interest rate 8%. If you could bring that interest rate down to 4%, you could cut your interest charges in half while lowering your monthly payment. Over 10 years, that could mean a difference of $57,152 in interest charges. Getting a lower interest rate could result in a lowering of your student loan payments. Plus, you can choose new repayment terms on your student loans, typically between 5 and 20 years. And you can combine multiple loans into one, which would simplify repayment.  All that said, here’s a major word of caution around refinancing federal student loans with a private lender: If you refinance federal loans, you lose access to federal programs, including deferment, income-driven repayment, and Public Service Loan Forgiveness.  Deferment and income-driven repayment plans can be a huge help while you’re in residency, so you may not want to sacrifice these programs by refinancing your federal loans. However, it could be worth exploring refinancing any private student loans you carry, since these don’t qualify for federal protections anyway. 

Can You Refinance Medical School Loans?

You can refinance medical student loans whether they’re private or federal as long as you meet a lender’s refinancing criteria. Most lenders look for good credit and a stable source of income. If you don’t have good credit, you may still be able to qualify by applying with a creditworthy cosigner. It’s up to you whether you want to refinance a single loan, multiple loans, or all your student loans. As mentioned, refinancing federal loans means forfeiting access to federal programs and repayment plans, which you may not want to do. You might also choose to refinance only select private loans if some of yours already have a low interest rate. It often makes sense to cherry-pick which student loans you want to refinance (and which ones you don’t) to get the greatest financial benefit.

When to Refinance Medical School Loans

Most lenders let you refinance medical school loans during or after residency once you’ve become a physician or other healthcare professional. Some may also let you refinance while still in school, but you may need to be in your final year or close to graduation. You’ll also need to meet a lender’s underwriting requirements (or apply with a cosigner). If you don’t have good credit yet, it may make sense to spend some time building your credit before you apply for refinancing. Refinancing student loans isn’t a one-time deal, either. Even if you’ve already refinanced, you can refinance again if it would save you money.  

Refinancing Medical Student Loans During Residency

Since you’re not making a huge income in residency, some lenders will let you pay only $100 per month on your student loan debt during this time. Of course, paying off student loans at $100 per month might not be as appealing as a full deferment of payments, which you can utilize during residency on federal student loans. You can also adjust payments on federal student loans with an income-driven repayment plan, such as Pay As You Earn or Income-Based Repayment. However, these $100 monthly payments can help cut down on interest charges so you’re not facing as big a balance when your residency comes to an end.

Refinancing Medical Student Loans After Residency

If you don’t refinance your medical-school loans during residency, you could consider refinancing them afterwards. Waiting to refinance could give you time to work on your credit and land a job with a higher salary. Lenders tend to assign the lowest rates to the most creditworthy candidates, so taking time to improve your credit could help you get a better offer. 

Refinancing Medical School Loans

If you have been using student loans to pay for medical school and are interested in refinancing them, here are the steps you’ll need to take: 

1. Make Sure Refinancing Is for You

First, make sure you’ve considered the pros and cons of refinancing. Qualifying for a lower rate could reduce your interest charges, especially if you have a large balance. But refinancing federal loans would make them ineligible for deferment, income-driven repayment, federal forgiveness, and other federal protections. President Joe Biden has announced a $10,000 break in federal student loans for people who earn up to $125,000 a year.Make sure that a  medical-student-loan refinance is right for you, as you can’t reverse the process once it’s done. As mentioned, you don’t have to refinance all your student loans, but rather can pick and choose which ones would benefit from refinancing and which ones would be better left alone. 

2. Check Your Qualifications

Every lender sets its own refinancing requirements, but most look for strong credit and a source of income. Some also let you apply with a cosigner. It’s worth exploring the requirements from a few different lenders, as well as checking out your credit.You can order a free copy of your credit report from AnnualCreditReport.com to get a bird’s-eye view of your accounts. While this credit report won’t reveal your credit score, you can find your score with a credit monitoring service online. Some credit card companies also let you check your score. If you see room for improvement, take steps to build your credit, such as paying down debt and making on-time payments on your loans. 

3. Check for Lenders

Many refinancing lenders let you check your rates online with no impact on your credit score. Since there’s no damage done (and no obligation), it’s worth shopping around with a few different lenders to see which makes you the best offer. All you need to do is enter a few basic pieces of personal information. Then, a lender will run a soft credit check and show you your offers. You might also use a student loan refinancing calculator to compare offers and make sure refinancing would make sense for you. 

4. Apply to Refinance Your Student Loans

If you see an offer you like, you can move forward with a full application. You’ll provide personal details, as well as supporting documentation, such as pay stubs and student loan statements. At this point, a lender will run a hard credit inquiry, which could ding your score by a few points. However, it should bounce back soon as long as you make on-time payments on your debts. Once a lender approves your application, it will send funds to your existing lender(s) to pay off the loans you indicated. Then, it will issue your new, refinanced student loan and set you up on your new payment plan. Note that you can always pay off your student loans early without penalty. If your income increases over the years, it could be a good idea to make extra payments and get out of debt faster. 

Student Loan Refinancing With Lantern

Lantern can help you shop for refinancing offers on your medical school loans without harming your credit score. To kick off the process, check out how Lantern can help you find and compare student loan refinance rates.
Photo credit: iStock/FatCamera
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.LCSL0522016

Frequently Asked Questions

Who should refinance medical school loans?
When can you refinance medical school loans?
Can you refinance while you are in residency?

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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