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Student Loan Refinancing

Should You Refinance Student Loans After Medical Residency?

June 15, 2020

Congratulations! You’ve graduated from medical school and completed your residency. You are most likely earning substantially more than you were as a medical resident. If you are focusing on paying down your student loans now that you are earning more, you might be wondering whether refinancing your student loans following residency is a good idea. In many cases, it can be a smart move. But there are important things to consider when deciding whether to refinance following medical residency.  

 

By Caroline Farhat

 

In 2018 the average student loan debt for a new medical graduate was $196,520. With the average medical resident salary of $61,200 per year in 2019, it may seem impossible to chip away at the debt balance. But after residency when the average salary for a family physician is $239,000, paying off your student loans can become much more manageable. But once you start thinking about your other financial priorities such as purchasing a house, starting a family, or saving for retirement, suddenly the loans seem like they will never be fully paid off. To combat this, refinancing student loans after you complete your residency can be a great way to reduce the loan amount you owe, making it easier to pay them off more quickly.  

 

What to Consider When Deciding Whether to Refinance After Residency

Here are the factors to consider when deciding whether to refinance your student loans after medical residency.

 

Student Loan Forgiveness

If you completed your residency at a non-profit hospital and think you will continue to work for a non-profit or government entity, you may be eligible for student loan forgiveness. If you have federal loans and are considering entering the Public Service Loan Forgiveness (PSLF) program, refinancing your federal student loans to private loans would not be a good option for you since private loans are not eligible for forgiveness under that program. With only 46% of medical graduates planning to work towards student loan forgiveness, this may not be a big factor for many, but it is something to be aware of. The PSLF requires 120 on-time payments while you work in a qualifying non-profit organization or government entity. Only certain federal loans and payment plans qualify for the program. Once the criteria are met, the remaining balance of your student loans is forgiven. At this time, taxes would not be owed for the forgiven amount, however, legislation is frequently introduced to change the program terms. 

 

Your Loans During Residency

How did you handle your student loans during your medical residency? Did you put them in deferment or forbearance? Did you already refinance them? If your loans were in deferment or forbearance they most likely accrued interest, meaning you will be facing more debt to contend with. Although the balance may seem intimidating you may be able to stop the high interest from accruing by refinancing and qualifying for a lower rate. If you have already refinanced, you may qualify for a lower interest rate now since you have increased your income.

 

Your Financial Goals

Your financial goals and timeline are factors that will determine if refinancing after residency is a smart decision for you. Will you continue to live like you are in residency and be able to use your additional income to quickly pay off your student loans? Or is it your financial goal to purchase a home once your residency is completed? If you have other financial goals you want to focus on in addition to paying off your student loans, refinancing would be beneficial to save you extra money per month. Retirement savings is important to focus on since new physicians may be in their 30s when they finish residency. Refinancing earlier and having extra money to save for retirement while you are still young allows you to catch-up on your retirement savings and take advantage of compounding interest.    

 

In addition, refinancing can allow you to shorten the length of your loan. This will not only save you in interest costs over the life of the loan, but it also helps you pay off your loans faster.  

 

Your Current Financial Status

When deciding whether now is the time to refinance, take into account your financial status. Do you have a strong credit score and a good credit history? These are just some factors that are analyzed by lenders to determine your interest rate on a new loan. Lenders usually require a minimum credit score in the 600s, at ELFI the minimum required score is 680. But if you are looking to score a lower interest rate you want a credit score in the high 700s. Lenders will also want to see three years of good credit history. If your finances need a little improvement, refinancing right after residency may not be a good time because you may not see much savings. However, a financially prudent cosigner may be able to help you qualify for a lower rate. If you are already rocking a high credit score and strong credit history, refinancing after residency could save you money now. 

 

Your Current Income

If you are now earning a physician’s salary, instead of your medical resident salary it may be a great time to refinance. When you apply to refinance student loans, your debt-to-income ratio is calculated and helps determine your interest rate. The lower your ratio the better. All your debt is taken into account, including mortgage, car payment, student loans and credit cards. Most lenders will require a ratio of 50% or lower to qualify for refinancing. 

 

For example: if your debts are student loans of $2,000 per month, mortgage of $3,000 per month, auto loan of $500 per month, and credit cards of $200 per month, your total monthly debts are $5,700 per month. If your monthly income is $14,000 per month your debt to income ratio is $5,700/$14,000 = 40.7%.  

 

If you want to see how much you could save by refinancing, use our Student Loan Refinance Calculator to get a custom calculation of your potential savings.* You can also see how shortening the loan term could help pay your loans off faster and save you more interest over the life of the loan. 

 

Conclusion

For many physicians, refinancing student loans after residency will be advantageous. But be sure to consider your own circumstances and finances to determine what would be most beneficial for you. Either way, having a plan to tackle student loan debt is always a good start!

 


 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

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Millennial reading news about student loans in coffee shop.
2020-07-10
This Week in Student Loans: July 10, 2020

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:
US Capitol

GOP Concerns Over Costs Could Limit Student Loan Relief In Next Stimulus

GOP Senate leaders are showing increasing concern about the costs of additional economic relief, particularly when it comes to student loan relief, as they weigh a second stimulus bill.

Source: Forbes

 

State Senate Chambers

Democrats Fail to Override Trump Veto on Student Loan Policy

This Friday, House Democrats were unable to override the Trump Administration's veto on a proposal to reverse the Education Department's strict policy on loan forgiveness for students misled by for-profit colleges. The House voted 238-173 in support of the override measure, coming up short of the two-thirds majority needed to send it to the Senate.

Source: ABC News

 

question mark

Study Finds Gen Z Borrowers Are Unaware of COVID-19 Student Loan Relief Programs

While the CARES Act allowed those with federal student loans to pause payments until September, a recent survey from Student Debt Crisis shows that Gen Z borrowers, in particular, were the least aware of the relief program.  

Source: CNBC

 

note saying pay off debt

Author Shares Her Big 'Wake Up Call' That Led Her to Pay Off $81,00 in Student Debt

35-year-old Melanie Lockert, the author of "Dear Debt," shared with CNBS the story of how she was able to pay off $81,000 in student loan debt over 9 years, with her big wake up call coming five years into repayment.  

Source: CNBC

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

picture of different loan term lengths
2020-07-08
Dash Through the Debt: How a Shorter Student Loan Term Adds Up

If you’re like most college graduates, you’re sick of your student loans. If you want to get rid of your debt once and for all, refinancing your loans and opting for a shorter student loan term is a smart strategy. You can secure a lower rate and pay off your loans years ahead of schedule while saving thousands.    Here’s what you need to know about shortening your loan term, as well as how much shortening your student loan term could save you.   

How long does the average graduate take to repay their student loans? 

When you graduate from college, you likely expect to pay off your student loans quickly. However, life often gets in the way of your plans, even if you make a good salary.    While the
Standard Repayment Plan for federal student loans is ten years, many students extend their repayment terms with income-driven repayment plans, forbearance or deferment periods, or by missing payments altogether. According to the One Wisconsin Institute, the average length of repayment for graduates with bachelor’s degrees is 19.7 years. If you have graduate student loans, the average repayment period is even longer.    With such a longer repayment term, you’ll pay thousands of dollars in interest charges on top of what you initially borrowed, adding to your loan's total cost. And, carrying such a heavy financial burden for decades can force you to put off other goals, like buying a house, starting a business, or even getting married.   

How to get a shorter student loan term

When you take out a student loan, you sign a loan agreement or promissory note where you promise to pay the loan back according to set repayment terms. The agreement will outline the loan’s interest rate, payments, and loan term.    Many borrowers don’t realize that you’re not stuck with those terms forever. If you’re unhappy with your current loan’s repayment terms or your finances improve, there is a way to change them: student loan refinancing.*    When you refinance your debt, you apply for a loan from a lender like Education Loan Finance for the amount of your total existing student loan debt. If you have both federal and private student loans, you can combine them so you’ll have just one loan to manage and one monthly payment to remember.*    The new loan will have different terms than your old ones, including the interest rate and monthly payment. When you apply for the loan, you can choose your own loan term that works for your goals and budget. For example, if you currently have a ten-year loan term, you can select a five or seven-year loan if you'd prefer a shorter term.   

Benefits of a shorter student loan term

Instead of making payments for 20 years or more, it’s a good idea to select a shorter loan term, if you can afford it. Opting for a shorter student loan term has many advantages:   

1. You can get a lower interest rate

When you have a long loan term, lenders consider you to be a riskier borrower and they charge you a higher interest rate. You’ll have a lower monthly payment, but the longer loan term will cost you more money in interest charges over time.    By contrast, lenders reserve their lowest interest rates for credit-worthy borrowers who choose the shortest loan terms. If you want the best possible rate, opting for a shorter loan term will allow you to save money.    You’re probably wondering, “How much can I save by shortening my loan term?” Let’s look at an example.    Pretend you had $30,000 in student loans with a ten-year loan term at 5% interest. By the end of your repayment term, you would repay a total of $38,184; interest charges would cost you $8,184.    If you refinanced your loans and chose a five-year loan and qualified for a 3.19% interest rate, you’d repay just $32,496 over the life of your loan. By refinancing your debt and selecting a shorter loan term, you’d save $5,688.   

Original Loan

Balance: $30,000 Interest Rate: 5% Loan Term: 10 Years Minimum Payment: $318 Total Interest: $8,184 Total Repaid: $38,184  

Refinanced Loan

Balance: $30,000 Interest Rate: 3.19% Minimum Payment: $542 Total Interest: $2,496 Total Repaid: $32,496

2. You’ll pay off your debt earlier 

When you choose a shorter loan term, you’ll be able to pay off your debt years ahead of schedule. Not only will you save a significant amount of money in interest charges, but you’ll also have the psychological benefit of not having to worry about debt any longer. If your student loan balance was causing you stress, that’s a significant advantage, and a huge weight off your shoulders.   

3. You’ll free up cash flow

Once you’ve paid off your student loans, you’ll free up extra cash flow. You’ll no longer have to make your monthly loan payment, so you can instead direct that money toward other goals, such as saving for retirement, boosting your emergency fund, or buying a home. If you use the above example, you’d have $542 per month you could use to fund your financial goals.    To put that in perspective, let’s say you paid off your loans by the time you turned 27. After that, you invested the $542 you were paying toward your student loans into your retirement nest egg. If you contributed $542 every month into your retirement fund and earned an 8% annual return, on average, your account would be worth over $1.8 million by the time you reached the age of 67.   

The bottom line

While extending your loan term may seem like a good idea to get a lower monthly payment, that can be a costly mistake. You’ll have to pay a higher interest rate and, over time, the longer loan term will cause you to pay back far more in interest charges.    Instead, consider refinancing your loans and selecting a shorter student loan term. You’ll be debt-free sooner, and you may save a substantial amount of money.    To find out how much you can save, use the student loan refinance calculator.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2020-07-02
Should You Keep Paying Federal Student Loans During CARES Act Suspensions?

You probably already know that the CARES Act has suspended Federal student loan payments for the time being. Until September 30th, you aren’t required to make payments, and the interest rate of your loans is set to 0%. This is primarily to help those with student loans who are struggling during these uncertain times. If your student loans are in forbearance due to the CARES Act suspensions, you have several repayment options based on your financial goals.

 

Option 1: Take Advantage of That 0% Interest

Normally, when making extra payments on student loans, your money is first attributed to any collections charges or late fees, then to accrued interest, then to the principal itself.

 

With the current 0% interest rates, however, if your account doesn’t have any fees or charges, you’ll save some money at that step. The more you can reduce your principal balance, the more money you’ll save over time in interest.

 

For example, let’s say you have $25,000 in student loans at a 4% interest rate and you want to pay it off in the next 10 years. Over that period, you accrue $5,373.54 in interest. However, if you take advantage of the CARES Act 0% interest, you can change the course of your repayment.

 

For instance, if you continue to pay your student loans during this period, the payments will be attributed straight to principal and will save you about $300 in accrued interest over the course of your repayment.

 

Option 2: Wait Until September And Resume Payments

If the coronavirus has affected your finances, don’t worry about paying down your student loans too quickly. Instead, use this time to get your other debts under control. Focus on paying back higher interest rate debt, like credit card debt, which will impact your long-term financial health.

 

Option 3: Refinance and Take Advantage of Low Interest Rates

During this time, many student loan refinancing companies are offering low interest rates. If you’re locked into an unfavorable rate, this would be a great time to consider refinancing student loans to save on interest costs.

 

This is an especially great option for borrowers with private loans, as these types of loans aren’t currently receiving any type of federal forbearance benefit. For a personalized look at how refinancing could improve your financial health, check out the ELFI Student Loan Refinancing Calculator.*

 

So, should you keep paying federal student loans during the CARES Act suspensions? The answer depends on your unique goals. Whether you choose to pay your federal loans, take care of other expenses, or refinance your student loans, this is a great opportunity to eliminate some additional debt before the September 30 deadline. Happy saving!

 
 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.