Refinancing Your Student Loans as a Resident

Last updated July 2020

If you’re a resident with a big load of student loans from the feds at a 6.8% interest rate (or worse), your choice has generally been IBR or forbearance. The mountain of debt compared with your relatively paltry resident salary has put conventional student loan refinancing—which requires a reasonable debt/income ratio—out of reach. If you have an average loan burden (say, $180k) or higher, your IBR payments also only cover around half of the monthly interest accrued (so despite your best efforts, your loans are still growing). If you forbear, they’re growing even faster.

So basically, your loans have been growing at a crappy interest rate, and you’ve been unable to bail to greener pastures.1If you’re doing IBR in order to qualify for PSLF, then that’s a separate issue. See below. Until now.

There are now two four three players who offer student loan refinancing specifically to residents. Laurel Road (formerly DRB) was the first. They were then joined by LinkCapital (now defunct). Later, Splash Financial and SoFi joined the pack. Then, Splash pulled the plug; and then, they came back.

This is how it works:

• For Laurel Road, you apply for student loan refinancing whenever you want starting from when you match as an MS4 (they’ll respect the usual 6-month post-graduation grace period, don’t worry). Ditto SoFi.
• For Laurel Road and SoFi, no set maximum loan amount.
• All will use a multifactorial process to look at your application, including your FICO scores, your debt and total loan amount, and your medical specialty. They use your specialty to determine the median projected/future income for you and use that instead your current income to calculate your debt to income ratio (DTI).
• If you meet the requirements, you get to trade your old loans for a new one. For Laurel Road, physician spouses can even consolidate their loans into one.
• None have origination fees. 
• For Laurel Road, while in training (residency + fellowship), your monthly payment is $100. SoFi also requires $100 payments but only for training lengths up to 4 years. Splash is $100 for 7 years.
• After you finish training and begin making real money, you will enter standard repayment. Any interest accrued during the training period will capitalize at this point (but did not compound/capitalize during training).
• In some ways, these offerings are like income-driven repayment plans in the sense that your payments are low in residency and then ramp up once you finish. It’s not like IDR in the sense that it stays $100 or $75 per month regardless of your fluctuating income as a resident, and the new private loan loses any chance of achieving federal loan forgiveness.
• None have prepayment penalties. Prepayment can also directly go to your balance and not to uncapitalized interest. If you are already doing IDR, this means that you can put that extra $300 or $400 you’re already used to paying every month toward your loans anyway, only now this money will go further. For example: $500 a month for IDR means you spend $6000 a year on your loans. Depending on your loan amount and your new interest rate, this amount may be enough to completely stop the growth of your loans (instead of merely slowing down the rate of negative amortization).
• Grace periods are usually honored, as well as a three-month grace period before entering full repayment after residency/fellowship ends, giving you a few cushion months at your new salary.
• Accrued interest capitalization won’t capitalize again until after residency (which is similar to what happens for many physicians in IBR/PAYE, worse than REPAYE, but better than forbearance).
• Loans are discharged in the event of death and permanent disability (like federal loans). With Splash, only some loans are forgiven (depending on the underlying funding source, so read that fine print!)
• Laurel Road offers an economic hardship deferment (in three-month chunks) if things get tough. Other companies will generally grant you a temporary forbearance when needed as well.
• If you don’t qualify for refinancing (e.g. low credit score), it’s possible to reapply with a cosigner (and still be a part of the resident program).
• The rates you’ll get as a resident aren’t going to be as good as those of an attending. With most companies, if you want to get lower, then you should reapply when you’re an attending. A trainee applying in their final year with a signed employment contract can get an attending rate.

It seems like all student loan refinancing companies have referral programs to drum up business, whereby you get some cash if you send a friend their way. Laurel Road will give anyone who joins through this page $300 for signing up (the equivalent of three months free, nice). SoFi is offering $300. Splash is offering $300. If you’re interested in refinancing, just do the initial 2-min rate check application and see who gives you the lowest rate. If the offers don’t make sense, then don’t sweat it. Your credit won’t get pulled until you do the real application.

What I found clever about the original Laurel Road offering is that they not only stood to profit from the extra years of interest accumulation if a new borrower paid the minimum amount during residency, but that they’d found a way to get at physicians early and compete against the other companies on something other than who has the lowest offered rate on a given day. Frankly, I’m surprised SoFi and others took so long to join in (I talked with one of their directors about this back in 2016!).

Interest Capitalization

One thing that happens if you switch from federal income-driven repayment to private consolidation/refinancing is that your accrued interest will capitalize. This means that if you had loans of $180k with $40k of uncapitalized accrued interest, your new loan amount (that will now be gaining interest) is $220k after refinancing. That can be really bad, but all depends on the rates:

$180k at 6.8% APR accrues $12240 every year in interest.
$220k at 3.5% APR accrues $7835 the first year in interest.

So you’ll have to do the math with the rates you are offered versus the amount of unpaid interest you have sitting around to see how it works out. Online calculators (like this one) make it pretty straightforward. The interest capitalizes at end of your six-month grace period after finishing school or when you consolidate, so if you just recently graduated, this is irrelevant. If you’ve been forbearing, then your interest already has and continues to capitalize, so that downside also doesn’t apply.

Part of what made refinancing so desirable back in 2015 when I first wrote this post was that interest rates were at all-time lows. It was a great time to buy a house too, and it made the 6.8% federal student loan interest rate for graduate students particularly galling. Since then, federal rates dropped a bit and the IDR program added an unpaid interest subsidy to many borrowers through the REPAYE program that many residents can benefit from. In other words, refinancing as a resident was something that lots of residents could have benefitted from in 2015 when DRB was the only party in town. Now, the majority of residents will do better in REPAYE.

So should I try to refinance?

• If you have private loans at high rates, this is a no-brainer.
• If you have federal loans and have been forbearing, then this is also worth pricing out. $75-100 a month to slow down the relentless climb of accruing interest can save a lot of money in the long run, particularly if you have a lot of PLUS loans
• If you have federal loans and are doing IBR/PAYE to be financially responsible but have no interest/faith in PSLF, then refinancing is also definitely worth considering. As there is no prepayment penalty, you are free to still make your old IBR-sized payments. Those payments will go a lot further at a lower interest rate. So if you know you want to do private practice, then there’s really no big reason to stick with IBR. If you’re in REPAYE, then feel free to apply for private refinance, but only pull the trigger if the rate you’re offered is lowered than your effective interest rate with the REPAYE unpaid interest subsidy.
• Other than losing PSLF, the main downside to switching from IBR/PAYE/REPAYE is interest capitalization (as above). Because of interest capitalization, you’ll have to do some math based on what rate you’re offered, how much you owe, and how much you plan on paying monthly to figure out if refinancing is worth it for you. This matters more the longer you’ve been making income-driven payments that don’t cover the accruing interest; if you just graduated, then you don’t have to worry about this.
• If you’re doing IDR temporarily but think you’ll need to start forbearing (having kids soon, etc), then it only makes sense to refinance if you can afford the small token payment.
• If you are nearing the end of residency, keep in mind that depending on your loan amount and your projected salary, your interest may soon capitalize anyway, IBR or not (i.e. you may no longer have a “partial financial hardship”). You’ll also get a better deal with SoFi if you’re within 12 months of the end of your training and have a signed employment contract.

Other options?

You can refinance with CommonBond and get an attending rate + $300 cash back if you apply during your final year of training with a signed job contract.

Otherwise, for residents with average loan burdens, options are limited. Another player that is potentially viable is LendKey ($300 bonus). The maximum loan amount is currently $300k. Additionally, on an average resident salary of $55k, the maximum loan amount without a cosigner would be approximately $75k. To hit even their old maximum of $175k, you’d need an income of $85k. While there is no special resident program, they do offer interest-only payments, which if your loans are a small enough may be entirely reasonable. The interest-only payment on $100k at 5% is around $400/month, for example. Earnest ($300 referral bonus) tells me they are also willing to refinance residents despite their debt/income ratio, but you’d essentially have to have enough income to make full payments on a 20-year (the maximum) term, so it’s a no-go for big borrowers as well.

So for lower loan amounts, Laurel Road, SoFi, and Splash are potentially joined by LendKey and Earnest. But for an average resident with average debt, LendKey and Earnest’s current offerings probably won’t cut it.

So if you’re an attending, apply to all of them and see who gives you the best rate. Initial rate checks don’t affect your credit. When you sit down and really apply to several student loan companies to get your finalized rates within a short time frame, it’s considered a single hit on your credit report, so the more the merrier.

For further reading, here is my rundown of all of the medical student loan refinance options.

What about PSLF?

See this post. Keep in mind, PSLF can only take place after 10 years of monthly payments. If you have a smaller loan burden or a short residency, the amount you can theoretically have forgiven may be low (assuming the program continues; it’s new enough that no one has actually had their loans forgiven yet). PSLF is the best deal for those with long residencies/fellowships (low monthly payments for longer under IDR), with a lot of loans (private school = more forgiven), and low attending salaries (lower IDR payments = more forgiven).

In fact, the desire to do PSLF is the main real reason to not bother doing a private refinance rate check if you aren’t eligible for a good REPAYE rate subsidy. At least, the current PSLF is: recent budget proposals have included a proposed capping PSLF or canceling the program entirely, though all changes are designed to affect only new borrowers. So current residents should be grandfathered into PSLF without a cap and get solid loan forgiveness. Future medical students, however, could one day have the real benefits of this program essentially washed away. Now that giving “rich” doctors and lawyers big wads of cash is a legislative issue with bipartisan support, PSLF may end up being a short-lived panacea for physician debt.

If you’ve heard about getting your loans discharged after 20-25 years (IBR or PAYE), you should probably forget about it. Unless you quit medicine and never make a decent attending salary, all but those with the most egregious student loan amounts won’t get their loans forgiven this way (and even if you did, you wouldn’t save much money given all of those extra years of making payments and taxes due on the forgiven amount). If you make little enough (e.g. part-time academic primary care) to stretch out your loans for 20 years but couldn’t do PSLF, then you might have some amount forgiven, but then you would have spent a ton of extra money over the years on interest, and then forgiven amount is taxed (your marginal tax rate * a multi-hundred thousand dollar loan debt = a huge tax bomb). The best reason to keep your federal loans around at 6.8% or worse is for PSLF or because you can’t yet qualify for something better.2The information contained on this website does not constitute legal or tax advice, etc etc.