Some see refinancing as an easy decision for physicians. With many doctors enjoying excellent job stability and compensation, refinancing at a lower interest rate certainly has merit. However, there are several reasons doctors should avoid the temptation to refinance their student loans.
In most cases, the decision comes down to comparing the federal student loan perks against the lower interest rate from refinancing. Federal student loan benefits are more than just protection for borrowers who face unemployment or underemployment. Under the right circumstances, these perks may help practicing physicians as well.
Public Service Loan Forgiveness (PSLF) Eligibility
Taking a PSLF eligible job doesn’t mean a vow of poverty.
The key factor in qualifying PSLF is your employer. What you do or how much you get paid does not impact PSLF eligibility. Doctors employed by the government or a 501(c)(3) non-profit may qualify for Public Service Loan Forgiveness. The Department of Education’s PSLF Help Tool is an excellent resource for investigating employer eligibility for PSLF.
Many Physicians also work in private practice in addition to their government or non-profit job. This additional income does not prevent qualifying for PSLF. The only impact is that the extra earnings will increase monthly payments on income-driven repayment plans.
The decision between PSLF and aggressive repayment is often complicated. Borrowers unsure of the best strategy may benefit from choosing a middle-ground approach that keeps both doors open.
Medical School is Really Expensive
In the category of incredibly obvious is the fact that medical school is really expensive.
It is worth pointing out this fact because it means the stakes are high. An error may cost more than a new car.
Refinancing at the lowest possible interest rate sometimes means a commitment to high monthly payments. How is your job security? How hard would it be to find a job with equivalent or better pay? Will you still be willing to do this work five years from now?
Just because you can qualify to refinance your student loans doesn’t make it is a good idea.
A Note About Private Loans:
If you have private student loans, the risk of refinancing is significantly smaller. Borrowers with private student loans usually benefit from a refinance as long as they can find lower interest rates.
Refinancing Makes it Harder to Take a Sabbatical
One common remedy is to take a year-long sabbatical. Time off can help you charge your batteries and rediscover your passion. Unfortunately, sabbaticals often come with a high price tag.
Stepping away for a year is far easier for federal student loan borrowers. Federal borrowers can sign up for an income-driven repayment plan and lower their monthly bill to 10% of their discretionary income. Those who refinanced to a private loan may struggle to keep up with payments.
Focus on Retirement or Other Financial Goals
The final concern for physicians refinancing is the opportunity cost.
Committing to an aggressive student loan repayment strategy means fewer funds are available for goals like retirement or buying a house.
Those who stick with federal student loans often find options to attack student debt and save for retirement at the same time. For example, borrowers chasing PSLF can use retirement contributions to lower their monthly payments and increase the amount of forgiven debt.