Although the medical profession is a lucrative one, it’s no secret that medical school itself is expensive, and many people graduate with a high student loan balance. There is also a long residency period in which you earn substantially less than most doctors eventually do. It’s important to be smart about repayment, and sometimes, that might involve refinancing.
Strategies for Repayment
What may seem like the easiest option or at least the path of least resistance is to simply pay back what you owe based on the original agreement. You may have a date in mind when you are going to be debt-free, and you simply plan to pay the same amount each month until that date arrives. One of the biggest disadvantages to this approach is that it means you never take advantage of changing interest rates. By keeping an eye on interest rates and acting quickly to refinance when they drop, you can save a significant amount of money.
You will probably have multiple loans, and you can pick and choose which ones to finance. For example, it might be advantageous to refinance your private student loans but not your federal ones if the interest rate on the latter is lower. One reason to refinance is so that you can pay off what you owe more quickly, but this is not the only reason. You might want to refinance loans from a private lender so that you can free up immediate savings if you are having cash flow issues. Sometimes, refinancing can do both things for you, giving your more money to spend and allowing you to get out of debt more quickly. Paying down what you owe improves both your debt-to-income ratio and your credit score, and as the former improves, the latter does as well.
One advantage of refinancing your during your residency is that money may be tight during this time, and you could end up with lower payments. In fact, some private lenders specialize in medical student loans. However, you might need to have someone cosign. If you have federal loans, you should decide whether you want to take advantage of an income-driven plan, which could mean you don’t have to pay anything toward your loans.
This could also give you more flexibility in the type of job that you choose afterwards since you won’t have to worry as much about a salary that allows you to cover your repayments. Refinancing federal loans means you won’t have access to this and other advantages, but many medical school graduates have a mix of federal and private loans, and private ones generally do not offer this option in the first place.
One advantage of refinancing after residency is that you have the opportunity to build a good credit history, which can give you a better rate. You may want to refinance more than once if you can get a better interest rate each time. In this way, you can save a substantial amount of money over time.