6 things to consider before refinancing your medical student loans

Can you afford the monthly payment?

Many clients may want to refinance during residency but not realize the large monthly cost to do so. Some companies may offer a low payment while in residency but lock you into a high payment as soon as you graduate. Be careful putting yourself on the hook to a bank for a high monthly payment.

Are you missing out on free money?

Be sure to explore ALL Federal loan forgiveness options to see if you may qualify for any prior to refinancing. Paying a higher interest rate may be worth it to get tax free forgiveness if available. Also explore if any employer repayment options require your loans to be Federal in order to qualify for reimbursement as well.

What happens to the loans if you pass away prematurely?

Federal loans currently have a tax-free discharge of your loans upon your death. Private banks typically will pass the debt to your spouse, co-signer, or your estate and therefore proper portable life insurance should be in force prior to refinancing.

How are your interest rates?

It is important to evaluate your current Federal interest rates to see if they would even be improved with a refinance. According to the Federal Register, most federal loans will be around 4-7% but some may have loans at a lower interest rate that might be similar to that of a refinance and therefore not worth the change.

Is your interest rate locked in?

All Federal loans have fixed interest rates but you will get the option of a fixed rate or a variable rate when you refinance. Although variable rates may be tempting, they are rarely a better option when we are looking at a long term repayment strategy. If you can't get a fixed rate lower than what you have with your Federal loans, it likely won't make sense to refinance.

What if life happens?

There are many ways to lower your payment without defaulting on your Federal loans. Private banks are much less forgiving and lock you into your repayment plan. If you are going to refinance, consider a longer repayment term (even if you plan to pay it off earlier) to allow for flexibility. If the longer repayment term is still too much from a budget standpoint, consider exploring further options with the Federal repayment programs.