What Doctors Need to Know about Student Loan Refinancing

March 16th, 2017 4 Min read What Doctors Need to Know about Student Loan Refinancing Blog
[caption id="attachment_8513" align="alignright" width="299"] Dr. Jim Dahle is the founder of the site whitecoatinvestor.com[/caption] Many doctors start their careers with a hefty amount of student loan debt hanging over their heads. In his article, “12 Things to Know about Student Loan Refinancing,” Dr. Jim Dahle, also known as the White Coat Investor, shares why eliminating your debt early in your career won’t just speed up your way to financial freedom, but also increase your happiness and give you the opportunity to take advantage of future opportunities. So, how can you eliminate your debt faster? Dr. Dahle suggests refinancing your student loans with a private company. “It is usually a no-brainer,” he writes, “but there are a few things to know about it.” Here are five things you need to know about refinancing your student loans: 1. You Save a Ton on Interest “If you have $300,000 in student loans at an average rate of 7%, and refinance that to 2.5%, you will spend $13,500 less in interest in the first year alone," writes Dahle. "That is $13,500 that can go toward principle instead of interest. The same monthly payment that would pay off a 7% loan in 20 years pays off a 2.5% loan in less than 10 years. A 10 year loan becomes a 6 1/2 year loan. A 5 year loan goes away in less than 4.” 2. Unless Qualifying for PSLF, Attending Physicians should Refinance Today “The only real caveat to refinancing for attendings is that you don’t want to refinance if you are going to try to qualify for Public Service Loan Forgiveness," suggests Dahle. "If you made lots of tiny payments during your training, PSLF is going to work out a lot better for you than paying off your loans. Even if you’re worried the program will change and you won’t be grandfathered in, I still think you ought to stay in a government income driven repayment plan while saving up a side fund to throw at the loans, just in case.” 3. You Don’t Have To Refinance All Your Loans “Sometimes a doc has some of his loans at a really attractive interest rate," he says. "Maybe they are from a time when rates were lower, or they’re from the undergraduate years or whatever. You don’t have to include those when you refinance. Just leave out any loan with a rate less than what you’re being offered.” 4. Consolidation and Refinancing Are Not the Same Thing “Financial terminology, like medical terminology, has a precise meaning. Sometimes docs get sloppy and say consolidate when they mean refinance," writes Dahle. "Consolidating is a process you go through with a federal lender where your loans are all bunched together into one easy payment. The issue, however, is that all of your loan interest rates are averaged (and rounded up to the nearest 1/8th percentage point) and that is the rate you pay. Refinance. Don’t consolidate.” 5. Variable, Short Term Loans Are the Best Deal “If you want the lowest rate possible (sub 3%) that means you’re going to have to commit to a 5 year term and run the interest rate risk yourself," he shares "That means if interest rates go up dramatically soon, you may end up paying more in interest than if you had taken a fixed rate loan. However, I think that’s a risk worth running for anyone willing to commit to living like a resident for 2-5 years until the loans are gone. If rates only rise a little, or rise slowly, or don’t rise for a few years (or at all) you’re going to come out ahead. Once you run the numbers on just how much and how quickly rates have to rise for you to lose this bet, you will likely be much more comfortable with it. Also if you’re committed to living like a resident and getting out of debt quickly, you likely have A LOT of slack in your budget and can easily cover the worst case scenario. Plus, you now have a little more motivation to live efficiently and get out of debt. A variable rate loan not only gives you a mathematical tailwind to speed you to financial independence, but a behavioral one as well.” Want to know what else Dr. Dahle says you need to know before refinancing your student loans? Read his full article on the White Coat Investor website. Looking for ways to bring in extra income to help pay off your student loans? Try locum tenens. Check out our open jobs.