A very promising program that can help many physicians save thousands of dollars of interest on their student loan payments and even liberate them of their payments sooner than expected.
Although I see physicians handle their finances in many different ways, one thing many physicians have in common is the massive student loan debt that they carry when they head into practice. For the vast majority of medical students, interest rates on graduate education loans were either set at 6.8% or 8.5%.
The unfortunate part about these loans is that they are fairly high interest in a historically low interest rate environment, and given the high amounts of student loan balances that doctors have out of school, it is very costly.
Darien Rowayton Bank in Connecticut recently rolled out a program that is allowing individuals to consolidate any student loans over $5k at more competitive interest rates:
15-year fixed — 5.75%
10-year fixed — 5.25%
5-year fixed — 4.75%
15-year variable — 3 month Libor + 2.5% (Currently at 2.76% total)
16- to 20-year variable — 3 month Libor + 2.75% (Currently at 3.01%)
Rates as of 11/1/2013
Consolidating loans can lead to shortened time horizons for payments AND reductions in their monthly payment amount. (You should always read the terms of any loan agreement before signing)
Now the con side of the program — it’s most likely not for residents and fellows. Since it is removing the loans from the Department of Education into the private banking arena, you lose any government benefits that come along with it, specifically the ability to go into forbearance, income-based repayment or pay-as-you-earn and the Public Service Loan Forgiveness Program (although very few physicians can actually take advantage of the loan forgiveness program with its stringy eligibility requirements).
You also lose the ability to have the loans forgiven in the event of a death or permanent disability; however, this can be solved by securing a low-costing term life insurance plan.
I would suggest running the numbers comparing your options or to work with a financial advisor or student loan expert who is familiar with this program and physician-specific financial considerations before diving in, but this is a very promising program that many physicians will save thousands of dollars of interest on and will likely be liberated of their payments sooner than they were originally planning on.
This should not be considered as tax, specific loan repayment for an individual or legal advice, please consult a tax, legal advisor or loan officer for advice regarding your specific situation.
Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. Please consult a financial professional for specific advice in relation to your individual circumstances. 765452/ DOFU 11-2013.