medical school loans - should i refinance?

[stringcheese]

Hi all,

I post very seldom here but read as much as I can given my busy schedule as a first-year resident. I must say I'm rather envious of those throwing the proverbial kitchen sink at their student loans. I try my best but my salary is fairly limited, and I live in a notoriously high COL area.

I have about 146k in student loans, all federal, all from medical school, with an average interest rate of about 6.2%. I could get into specifics loan by loan if people would find such information beneficial. I have no credit card debt and no other debt, have an old car (paid off) that I split with my husband, and bike to work about 95% of the time. We rent a 1BR apartment for a reasonable rate given the exorbitant cost of living (about 2300/mo with utilities included). Combined we have a post-tax income of about 8,000 per month (combined pre-tax annual income of ~150-160k). I am currently paying 1000/mo to my loans (which is about 30% of my post-tax salary), and my husband throws in another 500. Also maximizing his IRA and 401k and doing our best with mine (IRA), as my residency program does not offer a 401k match.

I have been contemplating refinancing with SoFi or DRB and have read the White Coat Investor posts about doing so. My hesitation is that I don't want to lose the so-called federal protections of government student loans, though I wonder if this is partially a marketing ploy by the government to keep people from refinancing privately at a lower interest rate. For what it's worth, my residency and fellowship will last about 6 years, and we want to have children during residency. I do not plan on pursuing PSLF.

Any thoughts - from doctors, non-doctors, folks with student loans, etc. - about how to proceed? Thanks so much in advance.

[thingamabobs]

If you're not going for PSLF then the best thing to do is refi those high interest loans. Find an interest calculator and figure what your payments would be with the new interest and how much you would be paying once your grace period is up.

What loan protection are you worried about? As far as I know, the loans will still be discharged if you die but you won't be able to use the income based repayment plans.

[Bob W]

I think you should consider it heavily but you should contact the sellers of the loans and ask them the detailed questions you have.  Congratulations on getting through school with such low loan amounts.   

Be smart now and save 80% of your net income over the first 10 years and continue to live like a poor student.   That way you can afford to pay for your kids college and retire before they are 10 years old. 

[Blonde Lawyer]

I went with SoFi.  They have emergency forbearance and they are discharged on death or disability like federal loans.  The only benefits I gave up were IBR and PSLF.  I didn't see myself using either.  More info about my experience in my blog post in my sig.

[little_brown_dog]

Definitely consider refinancing – I wish I had known about refinancing federal loans sooner. I had almost 100k in graduate student loans at 6.8% and spent 5 years paying them down before I wised up and refinanced. My rate is now 5% and we are on track to pay them off within a year.
It doesn’t sound like you plan on needing a deferment or forbearance any time soon, so it is probably worth it to at least apply. I used SOFI and was quite happy with them. FYI – if you plan on having your husband contribute to the loans anyway, consider adding him as a cosigner. This will allow you to list your total household income on your application instead of your individual earnings, increasing the likelihood that you will get an approval and a better interest rate.

[Blonde Lawyer]

Definitely consider refinancing – I wish I had known about refinancing federal loans sooner. I had almost 100k in graduate student loans at 6.8% and spent 5 years paying them down before I wised up and refinanced. My rate is now 5% and we are on track to pay them off within a year.
It doesn’t sound like you plan on needing a deferment or forbearance any time soon, so it is probably worth it to at least apply. I used SOFI and was quite happy with them. FYI – if you plan on having your husband contribute to the loans anyway, consider adding him as a cosigner. This will allow you to list your total household income on your application instead of your individual earnings, increasing the likelihood that you will get an approval and a better interest rate.

I wouldn't have him co-sign.  That gets rid of the "extinguished on death" benefit.  He would still be liable. 

[mxt0133]

Definitely consider refinancing – I wish I had known about refinancing federal loans sooner. I had almost 100k in graduate student loans at 6.8% and spent 5 years paying them down before I wised up and refinanced. My rate is now 5% and we are on track to pay them off within a year.
It doesn’t sound like you plan on needing a deferment or forbearance any time soon, so it is probably worth it to at least apply. I used SOFI and was quite happy with them. FYI – if you plan on having your husband contribute to the loans anyway, consider adding him as a cosigner. This will allow you to list your total household income on your application instead of your individual earnings, increasing the likelihood that you will get an approval and a better interest rate.

I wouldn't have him co-sign.  That gets rid of the "extinguished on death" benefit.  He would still be liable.

I would look into it anyway and see how much interest you would save and compare that to a term life insurance policy that matches the term of the loan and see if it make sense to have him co-sign and get a term policy for the amount of the loan.  You might come out a head.

[AlwaysLearningToSave]

Definitely consider refinancing – I wish I had known about refinancing federal loans sooner. I had almost 100k in graduate student loans at 6.8% and spent 5 years paying them down before I wised up and refinanced. My rate is now 5% and we are on track to pay them off within a year.
It doesn’t sound like you plan on needing a deferment or forbearance any time soon, so it is probably worth it to at least apply. I used SOFI and was quite happy with them. FYI – if you plan on having your husband contribute to the loans anyway, consider adding him as a cosigner. This will allow you to list your total household income on your application instead of your individual earnings, increasing the likelihood that you will get an approval and a better interest rate.

I wouldn't have him co-sign.  That gets rid of the "extinguished on death" benefit.  He would still be liable.

Blonde Lawyer brings up a good point but don't dismiss co-signing out of hand.  Another forum member (I think MDM) corrected my thinking on this issue when I posted that I was reluctant to cosign for my wife's relatively modest student loans. 

Think of the "extinguished on death" benefit as a built-in life insurance policy for the amount of the loan where your SO is the beneficiary.  Then run the numbers twice to compare: In scenario 1, see what interest rate you would get if you are the only signor on the refinance.  In scenario 2, see what interest rate you would get with your husband cosigning, but also factor in the cost of a $150,000 term life insurance policy.  If you kicked the bucket after your husband cosigned, he would be liable to pay the debt but he would have life insurance proceeds with which to do so.  Life insurance for young, healthy people is cheap enough that there is a good chance the interest savings in scenario 2 will be substantial enough that you will come out ahead even with the additional payment of a life insurance premium.  And keep in mind that you can abandon the term life policy at any time you determine the balance left on your loans does not justify the premium cost.

Note that this arrangement does not hedge against the risk that you become disabled and unable to work but do not die.  Federal loans can be discharged in the event of a total and permanent disability.  I don't know if private student loan refinancing will discharge in that circumstance or not, so you would have to look into it.  If the refinancing companies don't provide for disability discharge, long-term disability insurance could hedge against this risk, but I'm not sure whether the interest savings would be enough to justify the premium cost.