Refinancing Your Medical School Loans

According to the Association of American Medical Colleges, 70% of medical school graduates have education debt, and the average debt held is $207,000. If you have significant medical school debt, you’re not alone. And while you might be earning more than you did in residency, your monthly student loan payments may still be costly. If you’re looking for ways to ease that burden, you may be wondering if refinancing your student loans makes sense.

Here’s the benefits and drawbacks of student loan refinancing, how the process works, and when it could be a wise choice for your med school loans.

The Benefits of Refinancing Medical School Debt

Most people refinance their student loans for one of three reasons:

Reduce their interest rate
Lower their monthly payments
Change their repayment terms

Interest costs are a major factor. When you have a large amount of student loan debt, interest charges have a significant impact on your balances. And unfortunately, the interest rates on medical school loans can be quite high. Even if you qualify for federal Grad PLUS Loans, you can face steep rates. As of March 2024, the interest rate on Direct PLUS Loans is a whopping 9.08%.

To put that rate in perspective, let’s say you had $100,000 in student loan debt at 9.08% interest and a 10-year repayment term. Your monthly payment would be $1,271 per month, and by the end of your loan term, you will repay a total of $152,531. Interest charges would cost you over $52,000.

Pretty scary, right?

When you refinance medical school loans, you could qualify for a loan with a lower interest rate. Or, you can extend your repayment term if you want a more affordable monthly payment. Depending on which option you choose, the savings can be significant.

If you refinanced your loans and qualified for a 10-year loan at 5.2% interest, your monthly payment would drop to $1,070 per month. However, you’d pay just $128,455 over the length of your loan. By refinancing your debt, you’d save over $24,000.

The Drawbacks of Refinancing Medical School Debt

Regardless of your initial loan type, when you refinance your medical school debt, you borrow a new loan with a private lender – ideally at a lower interest rate. With this new private loan, you can lose access to federal benefits like:

Income-driven repayment plans
Ability to pause payments through deferment and forbearance
Loan forgiveness programs

Other than losing out on federal borrower benefits, refinancing may not offer savings if interest rates are currently high. Try ELFI’s student loan refinancing calculator to discover what you could save1.

Additionally, certain banks charge fees that could offset interest savings, including:

Application fees
Origination fees
Prepayment penalties

And if you’re still in your residency or fellowship, waiting to refinance until your credit score improves or your income increases could make sense. Both of these things impact your interest rates. Alternatively, you might consider working with a cosigner to help you achieve an even lower rate.

When Refinancing Your Medical Student Loans Makes Sense

If you’re thinking about refinancing but aren’t sure if now is a good time, consider the following scenarios. If one or more of these apply to you, refinancing could be a wise move:

You’re ineligible for Public Service Loan forgiveness
You plan to work in the private sector
You have high-interest private medical school loans
Your spouse’s income is high, which increases your income-based payments
You have a healthy credit score

If your payments are high, you’re unlikely to receive any type of loan forgiveness and you have great credit, why wait? Refinancing could lower your payment and offer you the opportunity to change your repayment term to best fit your financial goals.

How to Refinance Medical Student Loans

1. Find out if you qualify

First, make sure you meet the student loan refinancing eligibility requirements to refinance your medical student loans. As a baseline, you must:

Have earned a bachelor’s degree or higher from an approved college or university
Be a U.S. citizen or permanent resident
Be at the age of majority—18 years old, in most states—or older
Have a good credit history
Have a minimum credit score in the upper 600s

2. Consider asking a cosigner for help

You may not have established your credit history yet, or you may not be making much money. If that’s the case, consider asking a cosigner for help. A cosigner is a friend or relative with good credit and income who agrees to sign the loan application with you. Just be aware that if you don’t make the minimum payments on time, the lender will go to the cosigner for them.

While a cosigner isn’t required, adding one to your application could improve your chances of qualifying for a loan and getting a low interest rate.

3. Get a rate quote

Next, get a rate quote to see what kind of terms you can qualify for. With ELFI’s Find My Rate tool, you can get an estimated rate on both variable and fixed interest rate loans in just a few minutes without any impact on your credit score.

4. Compare interest rates from multiple lenders

Comparing rates from different lenders is essential for ensuring you’re receiving the best value when refinancing your student loans.

5. Submit your loan application

Once you find a loan that works for you, move forward with the application.

You’ll need to provide your personal information, including:

Details about your loans and employer
Recent pay stubs or W-2 for
A copy of your government-issued identification, such as a driver’s license

Alternatives to Student Loan Refinancing

Refinancing student loan debt can be great for some, but it’s not for everyone. If refinancing your medical school loans isn’t a good fit right now, there are a few other options for managing your debt:

1. Federal income-driven repayment plans

If you have federal student loans — such as Grad PLUS Loans or Direct Unsubsidized Loans — you may be eligible for an income-driven repayment (IDR) plan. With IDR plans, your loan servicer will extend your repayment term and reduce your monthly payment. Your new payment is dependent on your loan balance, income, and family size. Depending on your situation, you could significantly lower your payment amount.

2. Public Service Loan Forgiveness

If you work for a non-profit hospital, organization, or government agency, you might qualify for Public Service Loan Forgiveness (PSLF). With PSLF, the government forgives your remaining loan balance after you make 10 years’ worth of qualifying payments while working for an eligible employer.

However, not many people will meet the PSLF criteria. In fact, only 2.3% of processed PSLF applications have qualified since 2020.

3. State student loan repayment assistance programs

Depending on where you live, you could get some help with your debt through state student loan repayment assistance programs. Some states offer healthcare professionals money to repay their loans in exchange for a service commitment to work in a high-need area.

For example, doctors who live and work in Kansas can receive up to $95,000 to repay student loans. In return, you must agree to work in an approved facility in a health professional shortage area.

4. Locum tenens work

Another option is to take on locum tenens work. With this approach, you fill in for another physician on a temporary basis. Some terms can be for just a few days, while others can last for months.

Why is this a good idea? It can be lucrative. Qualified professionals can earn large bonuses, which you could use to make lump sum payments on your debt.

5. Establish a budget and limit expenses

Now that you’re no longer in residency, it may be tempting to spend some of your new income on a larger apartment or a better car. However, it’s a good idea to continue living like you’re still in residency to limit your expenses. By keeping your living costs low, you can free up more money for debt repayment.