A Doctor’s Guide To Refinancing Student Loans

For most future doctors, taking on debt is a necessary part of the career path. Between 76% and 89% of medical students graduate with debt, according to the Education Data Initiative. Dentists and Veterinarians experience debt at similar levels. 

Whether a physician, dentist or veterinarian, undergraduate and graduate education is expensive. According to the EDI, the average medical student graduates with $241,600 in total student loan debt.

After graduating with hundreds of thousands of dollars in debt, it takes time to overcome this financial burden. If you are interested in reducing your interest rate or your monthly payment, student loan refinancing might be a good option for you.

What is student loan refinancing?

Student loan refinancing means a private lender pays off your existing loan, then gives you a new loan with new terms. This can provide an individual with a longer repayment term — with lower monthly payments — or it can mean the individual pays less over time from a lower interest rate (or both!).

When should I avoid student loan refinancing?

Student loan refinancing can be beneficial to many but should be avoided in some cases. These are reasons to avoid refinancing your student loans:

• You are considering Public Service Loan Forgiveness. If you plan to or are working at a nonprofit, government agency or other qualified employer in pursuit of PSLF, you should not refinance your federal student loans as this automatically disqualifies you from forgiveness.
• Your new interest rate would be higher. If a lender offers you a higher interest rate than your existing one, it would likely be more beneficial to not refinance.
• You are or will in the future use an income-driven repayment plan. Refinancing federal student loans prevents you from using income-driven repayment plans like pay-as-you-earn or income-based repayment.

When should I refinance my student loans?

Refinancing your student loans can be incredibly beneficial. Every situation is different but here are a few scenarios where refinancing can be beneficial: 

• You qualify for a lower interest rate than your current one. Interest rates are determined in different ways. For federal student loans, interest rates are set once per year for the different loan types. Private student loans or student loan refinance are determined by the loan company themselves. This private student loan rate can be dependent on things like credit score, total debt, or income level. If you can refinance your loans at a lower rate than your current loans. you may want to consider refinancing.
• You have a variable interest rate, but you want a fixed interest rate. Some private student loans have variable interest rates that could increase based on market trends. Refinancing to a fixed interest rate could create a more predictable interest expense that won’t change during the loan.
• You want to reduce your number of monthly payments. If you have multiple monthly student loan payments, you may want to simplify your bills into just one monthly payment by refinancing.

What do lenders consider when refinancing student loans?

Different lenders use different metrics to determine your eligibility and interest rate. Lenders may consider:

• Credit score – Credit score is often the most important factor in being approved for and determining rate for student loan refinancing.
• Income – Lenders assess income to determine if you have the financial stability to repay your loan and won’t fall behind on payments during a time of financial stress.
• Debt-to-income ratio – Your earnings may be compared to your debt to determine if you have enough to repay your loan.
• Loan balance – Certain lenders will only refinance loans up to a certain amount.
• Cosigner – Cosigners are required for certain borrowers lenders may consider higher risk. This could limit your options.

Does refinancing student loans help my credit score?

The most significant way refinancing student loans could help you improve your credit score is if it helps you make on-time payments. 

The most heavily weighted factor used to determine your FICO credit score is credit history, which includes your on-time payments. If refinancing can lower your monthly bill and make it easier for you to make on-time payments, it could improve your credit score.

Does refinancing student loans hurt my credit score?

Refinancing medical, dental or veterinary school student loans should not have a significant effect on your credit score, but scenarios that may have a negative impact include:

• Hard credit checks – Many lenders use hard credit checks to view your credit file and determine your eligibility for a loan. If this occurs, your credit score may decrease by a few points temporarily.
• Multiple applications – Multiple credit inquiries can negatively affect your score. As you shop around for the best rate, many lenders offer pre-qualification with a soft credit check that won’t be a detriment to your score.
• Shorter credit history – Credit scoring favors long credit histories, so consolidating several loans with long payment histories into one with a shorter history could cause your score to drop.

Should I refinance my student loans during the COVID-19 student loan forbearance period? 

Federal student loans are currently in a holding pattern due to the ongoing student loan forbearance. With no need for payments during this time and the chance of partial forgiveness in the future, borrowers should carefully weigh their options before refinancing out of the federal system.

Once payments resume and any student loan policy decisions are announced, borrowers will have a clearer understanding of how to attack their student loans. For some, refinancing could be a great option to consider.

Private student loans are still requiring monthly payments and are ineligible for federal forgiveness, so if you would benefit from refinancing, there is no need to wait if you can get a better deal.

How long should my loan term be?

Loan terms can make a big difference when refinancing your student loans. If you choose a shorter loan term, your interest rate will likely be lower, but your monthly payment will be higher. 

For example, if you are a practicing physician, dentist or veterinarian refinancing $100,000 of student loan debt with Panacea Financial, you can choose a 5, 7, 10 or 15 year term. If you choose a 5-year term, your interest rate would be 4.75% APY, and your monthly payment would be $1,875.69. If you choose a 15-year term, your interest rate would be 5.50% APY, and your monthly payment would be $817.08.* 

To see how loan term will affect your loan rate and monthly payment based on your loan balance, see our Student Loan Refinance Calculator.

*Please note these rates and payment values are accurate at the time of writing but may change. To see our most current rates, please visit our Student Loan Refinance page.

How to refinance student loans

Once you decide refinancing student loans would help your financial circumstances, it is time to take the steps necessary to complete the process. 

• Know your credit score. Credit score can be a significant factor in interest rates offered by lenders, so knowing what your score is ahead of time will help you know what to expect. If your score is low, you may choose to improve it before refinancing to ensure the best rate.
• Choose a lender. There are many options for student loan refinancing. Shop around for the best rate and terms for your needs before committing to one. Some lenders base rates on credit score, but others, like Panacea Financial, have transparent rates regardless of your score. 
• Submit an application. Fill out a loan application to provide the lender with the necessary information and documents.
• Sign the final documents and begin paying your loan. Your loans are refinanced, and you can now pay your new loan. Keep in mind that your lender may not pay off your former loans immediately. Be sure to make any student loan payments during that time to not face any late penalties.

Refinancing your student loans with Panacea Financial

Panacea Financial has created a student loan refinance product that is designed for doctors. Doctors typically have much higher debt and a different career path and financial journey than those that traditional refinance lenders cater to.

Features of Panacea’s Student Loan Refinancing include: 

• No cosigner – You’re a grown up; we treat you like one.
• No maximum – Doctors can take on a lot of educational debt. We are here to help you manage all of it.
• No selling your loan – We’re with you the whole way.
• Soft credit check – Our application does not affect your credit score.
• Flexible rates and terms – Choose a repayment term and pick a low fixed interest rate.
• $100 monthly payments* during residency or fellowship – Reduce your payments while in training to help manage your expenses.

Take control of your finances today by refinancing your student loans. Start this step on your way to great financial freedom by applying for student loan refinancing here.

*Learn more about $100 monthly payments for doctors in training.

Panacea Financial, a division of Primis. Member FDIC.