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Refinancing Student Loans

 
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Because physicians earn high incomes when they graduate, many assume repaying student loans will be something they will be able to handle with ease. 


But with ever increasing costs and a decline in physician reimbursements, student loan repayment is something all physicians should take the time to research and consider. This includes calculating how the repayments will fit in their overall budgets and how long it will take to pay off loans. After all, they worked far too hard for too long to be overburdened with financial issues. 

Refinancing student loans can be a great strategy to manage student loan repayment situation and improve overall financial health. But it can be confusing. Inadequate research may result in decisions that lead to financial problems down the road.   

Here are some essential considerations: 

Terms of the refinanced loan in terms of payback years
Typically banks offer 5, 10, 15, and 20  year repayment terms. Consider how much you can afford to pay now, and how much interest you will accrue over the lifetime of repayment. The shorter the term accrues the least amount of interest during repayment, but the monthly payments will be high. ​

Variable or fixed interest rate 
Fixed interest rates tend to be less risky, whereas variable interest rate loans fluctuate due to economic conditions.  Study the economic environment, understand the risks and assess your ability to pay should the interest rates change significantly. 

Repayment Terms 
Find out when the repayment will start. What will the monthly payments be? Are there payment options? What are the repercussions for missing a payment or defaulting on the loan? Is there an interest rate reduction for automatic payment withdrawal? 

Origination fee
Many student loans have an origination or “startup” fee. Origination fees may be up to 2% of the total amount requested.  For example, for a $60,000 student loan you will pay $600 for a 1% origination fee. Usually the origination fee is added to the loan amount due instead of an upfront payment. 

Bundled federal and private student loans? 
Some financial institutions refinance federal and private loans together. This can ultimately obtain a lower interest rate to save money. However alternative and flexible repayment plans associated with a federal government loan program may be lost if bundled with another kind of loan. 

Co-signer and releases 
If your income or credit score is too low, the bank might require a co-signer to insure your student loans in the case of default. Some lenders offer a co-signer release. This can help free up revolving credit for co-signers allowing them to obtain a mortgage or auto loans.  

Credit score, salary, and debt-to-income requirement
Depending on total indebtedness, banks may require a minimum credit score or a set debt-to-income ratio.  Sometimes they may require a minimum monthly salary. Ask about these requirements before submitting your loan application.  It can save you time and frustration.

Maximum amounts of debt eligible for refinancing 
Banks typically have a maximum amount of debt they will refinance. The amount varies by bank and education level.  Know their lending parameters up front. 

Support and Customer Service 
Often this is the most important information. Lenders that 
provide poor customer service may not be the best bargain. Ask colleagues and mentors to provide insights into the quality of customer service. Don’t rely on what the lenders say about themselves. Remember: this will be a long-term relationship (5-20 years). Choose wisely. ​

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