Eligibility requirements for refinancing medical school loans

To refinance medical school loans, you need to meet the lender's eligibility requirements. While these vary by company, many lenders look at the following:

• Citizenship: Lenders may require you to be a U.S. citizen or permanent resident to refinance medical school loans.
• Credit score: Your credit score provides a snapshot of your financial credentials. Many lenders require a minimum FICO credit score of 670 to refinance. However, this depends on the lender. A higher credit score helps with both approval and qualifying for lower interest rates.
• Income: Refinancing lenders also look at your income to ensure you can afford your new loan. Minimum income requirements are set by the lender. For example, ELFI requires a minimum income of $35,000, while Brazos requires at least $60,000.
• Loan amounts: The total amount of debt you want to refinance must meet the lender's minimum and maximum loan requirements.
• Debt-to-income ratio (DTI): Your DTI is the percentage of your income that goes toward debt. Generally, refinancing lenders look for borrowers with a DTI of 36% or below.
• Degree: Some lenders allow current medical residents and fellows to refinance, but these loans often come with higher rates than traditional medical school refinancing options. If your residency qualifies for student loan forgiveness, it may be better to wait before refinancing.

Loan forgiveness vs. refinancing: Which is better?

Refinancing medical school debt may help you save a substantial amount. But depending on your employer and type of student loan, you may qualify for the Public Service Loan Forgiveness (PSLF) program, which could help you save even more.

The PSLF program forgives federal student loans after a decade of qualifying employment and monthly payments. Doctors who work for a nonprofit or government organization may qualify.

“Before refinancing, the borrower should calculate the potential amount of forgiveness they will forgo by refinancing, and compare this with the potential savings they will receive by refinancing into a lower interest rate loan. If the potential forgiveness is greater, they should not refinance,” says Mark Kantrowitz, author of “How To Appeal for More College Financial Aid.”

Kantrowitz notes that doctors may qualify for PSLF credit if their residency, internship, and fellowship are at a nonprofit 501(c)(3) hospital. You can use the PSLF employer search tool to verify if your workplace qualifies.

See Also: When Should You Refinance Student Loans?

How refinancing affects loan forgiveness

Refinancing federal student loans turns them private, making you ineligible for PSLF and other federal benefits. If you qualify for forgiveness, refinancing could cost you more in the long run. But if you have both federal and private loans, you may be able to take a hybrid approach.

“When you have both PSLF-eligible and non-PSLF-eligible loans, it might be best to keep them separate,” says Brent Boden, a certified financial planner (CFP) and wealth manager at Savvy Advisors.

“You can pursue PSLF for the eligible loans while refinancing the non-eligible loans to get a lower interest rate. This allows you to maximize your benefits from both options without losing the potential forgiveness for the eligible loans,” adds Boden.

You should also consider your career goals. If you want to start your own practice as a physician, that can impact whether it's the right time to pursue refinancing.

“If a medical student's career goal is owning a practice (or multiple practices), then refinancing is not the priority. I would instead focus on getting into the practice first and then worry about managing the student loans,” says Stephen B. Dunbar III, a financial adviser and executive vice president at Equitable Advisors who works with many doctors and dentists as clients.

“Most lenders would prefer to see cash in the bank, strong earnings, and a strong practice as opposed to lower student loan balances,” Dunbar adds.

Additionally, doctors can look into other state and employment-based repayment assistance and forgiveness opportunities for health care workers. For example:

• The National Health Service Corps Loan Repayment Program
• The Regents Physician Loan Forgiveness Program in New York State
• The Colorado Health Service Corps Loan Repayment Program

How to refinance medical school loans

If you've done a cost-benefit analysis and decided student loan refinancing is the right option, here's how to refinance student loans as a doctor:

1. Research lenders: Compare the best lenders for medical school loan refinancing and look at origination fees, interest rates, and repayment terms. See if lenders offer any perks or bonuses and check customer reviews online.
2. Prequalify: Lenders usually let you check your rate and prequalify for a refinancing loan. Typically, this doesn't impact your credit score as the lender does a soft credit pull. A hard credit pull happens when you submit your full application, and this causes a slight dip in your credit score.
3. Prepare documents: Gather your driver's license and Social Security number to prove your identity. You'll also need pay stubs, tax returns, or bank statements to verify your income. Finally, get your latest student loan statement, so the refinancing lender has your current loan amount and lender information.
4. Submit an application: Fill out the application online and before submitting, double-check your answers for accuracy and completeness.
5. Add a cosigner, if applicable: Refinancing can secure lower interest rates for doctors. But if your credit profile doesn't meet the lender's requirements, or you want a competitive advantage, add a cosigner. Cosigners must meet the lender's requirements and are liable for the loan.

Managing medical school debt after refinancing

Once you refinance medical school loans, you could save a substantial amount in interest. But at the end of the day, you still have a loan to repay. Here are some tips to help manage medical school debt after refinancing:

• Cut unnecessary expenses: Do a budget audit to see where your money is going. Take note of unnecessary expenses, like unused subscriptions, and cancel them. Reduce other expenses like delivery services and dining out to free up extra cash.
• Pay off high-interest loans first: Boden recommends using the debt avalanche method to repay debt. “This strategy involves paying off the loan with the highest interest rate first while making minimum payments on the others. Once the highest-interest loan is paid off, you move on to the next highest. This can help accelerate your debt payoff and save you money in the long run,” he says.
• Make extra payments: Put any cash windfalls into paying off your debt. If you get a bonus, raise, birthday gift, or tax refund, you can allocate those funds and reduce your total balance and interest costs.
• Focus on your goals: Remember why you want to refinance your medical school loans in the first place. Continue to build an emergency fund if you don't have one in place and focus on your other financial goals. “This can free up cash flow for other financial goals, like saving for a down payment on a house or investing,” says Boden.

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