The Quick and Dirty Guide to Student Loans

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Got loans? You’re not alone! Most doctors are finishing medical school with student loan debt well into the 6 figures. Add a few years of capitalized interest during residency and you can really find yourself in the deep end. According to NerdWallet, the average student loan debt for medical students is upwards of $196,000. Yikes!

So, what should you do?

The first fork in the road is to determine whether you’ll be pursuing some sort of loan forgiveness program such as Public Service Loan Forgiveness. Let’s take a look.

Pursuing the Public Service Loan Forgiveness Program

Of course, not having to pay back some, if not most, of your student loans would be the ideal circumstance, but unfortunately there’s a few extra steps than that. 

It can get extremely complicated if you don’t do your research to make sure you meet the qualifications:

  1. You must have Direct Loans 
  2. You must work for a 501(c)(3) employer or work for the government (VA). Virtually all residency programs are 501(c)(3).
  3. You must sign up for an income-driven repayment plan ranging from 10-20% of your income. PAYE or REPAYE are the best options for most folks.
  4. You must submit paperwork at least annually

All of the income-driven repayment plans also have their own sort of built-in loan forgiveness programs outside the PSLF, in case you don’t qualify for it. For a complete list of loan forgiveness programs, check out Student Loan Hero’s comprehensive list. For an in-depth look at the PSLF program, check out Student Loan Planner’s detailed guide. Or, if you’re like me and prefer to have an expert help you figure this all out, contact my friend Travis Hornsby of Student Loan Planner.

The rest of this guide will assume you’ve decided to refinance your loans.

Refinancing Your Loans

Refinancing your student loans works a lot like refinancing your mortgage: switching your current loan provider for one with a much lower interest rate, saving you thousands of dollars in interest. The good news: no closing costs!

The only downside is that if you refinance federal student loans, you lose access to federal benefits like loan forgiveness, but many lenders offer loan forbearance, unemployment protection, and/or loan forgiveness at death–so if you go the refinancing route, make sure you research a lender’s benefits thoroughly before selecting. 

Honestly, the pros outweigh the cons when it comes to refinancing. You’ll save a lot of money and you can refinance again if you find a lower rate. For those concerned about loans not being forgiven if you die or become disabled, simply purchase enough term life insurance   and ensure you have adequate long term disability insurance. Thankfully, many of the refinancing companies do offer some sort of reprieve from both.

Factors that help you get a lower interest rate:

  • Current market rates, such as LIBOR
  • Your credit score: most lenders are looking for a score in the mid to high 600s.
  • Work experience: be sure to include your time in residency–it counts!
  • Applying with a cosigner: you’re more likely to get approved with a qualified co-signer, meaning they have a good credit profile. 
  • Your debt to income ratio: the lower your debt-to-income ratio, the better.
  • Applying with multiple lenders: that way, you can compare rates and maximize your chances of getting approved.
  • Loan terms: interest rates are generally higher for longer terms
  • Fixed vs. variable: Variable rates will be lower but they have the potential to increase over time. If you plan to crush your loans pretty quickly, I recommend choosing variable.

Top (5) Tips to Pay Off Student Loans

  1. Live like a resident! One of the biggest mistakes physicians make is to increase their spending in proportion to their pay increase once they get out of residency. 
  2. Make a visual representation. Whether it’s an Excel spreadsheet or a physical chart on the wall, it really helps to have a visual to keep track of your progress and motivate you to keep going. 
  3. Refinance those loans! See our recommended list here and get some awesome cash back bonuses!
  4. Don’t be afraid to refinance again. If rates go down, there is no penalty (fees) for refinancing again.
  5. Use the debt snowball method to pay those loans down.

Until 12/15/19, Wealthy Mom MD has a special offer for our readers when you refinance with SoFi: an additional 0.25% off your rate. Enroll in auto-pay and receive a total of 0.5% off your rate!

In time, and with a little savvy, you can tackle those student loans and live debt-free! I know you can do it, like so many others before you! You’ve got this!

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