Paying off a medical student loan: consolidation vs refinancing

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The transition from medical school to residency can fill a new doctor’s mind with pending decisions: where to live, how much to budget, how to study for the USMLE Step 3 exam. Servicing your student loan debt will likely have immediate and lasting effects on your financial situation, so it’s important to include your repayment strategy in this early decision-making. A credit expert describes two basic options – consolidation and refinancing – and suggests where to start to assess your situation.

“Tackling student loan debt is probably the most important financial initiative for young doctors,” said Alex Macielak, who works in business development for Laurel Road, an FDIC-insured bank that offers refinancing of students. student loans. “It’s a big part of your financial situation early in your career, and it will last for, in many cases, more than 10 years after graduation. “

In fact, monthly debt payments could even be a young doctor’s biggest monthly expense.

“For a lot of people, student loan payments can be close to or greater than a mortgage payment, so it’s important to recognize it strategically,” Macielak said. “There are many options for healthcare professionals, through federal repayment or refinancing options, to lower the cost of debt so you can move on more quickly to other financial initiatives in your life and your career. “

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Laurel Road has drawn up a brief side by side comparison consolidation of loans and refinancing. AMA members who refinance their student loans with Laurel Road receive a 0.25 percent discount via Benefits of AMA PLUS members.

WADA’s career planning resource includes a primer on Medical Student Loans which explains the basics of loan interest, grace periods, deferral and forbearance, and delinquency and default. It also contains links to loan repayment assistance and scholarship programs.

Loan consolidation involves consolidating your loans into a single payment to a single loan manager. This new loan might have a lower monthly payment and a longer repayment period, but the interest rate will stay the same, which could mean paying more over the life of the loan.

“If you keep your loans with the federal government and consolidate them, it simplifies your payment – you’ll have one monthly payment rather than multiple,” Macielak said. “But you will also retain the flexibility to use federal programs such as income tested and civil service loan forgiveness. There is a little more financial flexibility associated with these federal programs.

Refinancing, on the other hand, is basically paying off your existing federal and private loans and taking on new loans at lower interest rates, provided those rates are available. This could reduce both your monthly payment and your total repayment amount.

“In most cases, that also simplifies the picture, as you consolidate multiple loans into one,” Macielak said. “The trade-off is that you lose the ability to ask for a loan forgiveness or use an income-based repayment. You get a lower interest rate but less flexibility.

“The first step for most people is to look at federal options,” Macielak said. “Some or maybe even all of your loans are federal. Ask yourself, “What is currently available to me with my current loans?” If you like it, stick with it. Otherwise, consider refinancing.

Beyond that, said Macielak, it’s important to understand that the approach that works for your coworkers may not be the best suited for your situation.

“There is no one-size-fits-all approach, especially for doctors. Someone in your same residency program with the same amount of debt might be pursuing a very different repayment strategy due to other factors, ”Macielak said. “Your personal financial goals will affect how you approach your student loans, so this is something worth researching on your own. “

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