Student Loans – Forgiveness vs. Refinancing
The path to becoming a cardiologist is not an easy one. The coveted title of "fellow" is earned after undergraduate college, medical school and residency the first eight of these years often financed by student loans. Taking out loans for your education can be one of the best investments you will ever make. However, they can also become more of a burden than necessary if not handled properly. This article will discuss the two main methods cardiologists use to become free of student loans: loan forgiveness and full repayment, with emphasis on refinancing with a private lender.
As the status of your future employer will determine your eligibility for loan forgiveness, the first step is to ask yourself the question: Do I intend to work for an employer that will allow me to qualify for public service loan forgiveness?
If your answer is "yes" you intend to work for a nonprofit, tax-exempt 501(c)3 organization (such as most teaching hospitals), government entity or another qualifying employer, then taking advantage of the public service loan forgiveness program can be very beneficial. The most common way is to enroll in one of the income-driven repayment plans, such as income-based repayment, and make 120 qualifying monthly payments while working for a public service organization. The remaining balance of your student loans will be forgiven at the end of the 120 monthly payments.
If you have not already started this, then you will want to begin income-based repayment immediately to get as many payments as possible to qualify for public service loan forgiveness based on your income as a fellow. You will also want to make sure your loans qualify under the direct loan program (you may need to consolidate any FFEL loans into direct loans first). It is important to get the proper documents each year attesting to your work at a qualifying employer and periodically check with the organization servicing your loans to confirm your payments are continuing to count toward public service loan forgiveness.
Refinancing With a Private Lender
If your answer is "no" you intend to work for an employer that does not qualify for public service loan forgiveness, then it may make sense to refinance your student loans with a private lender. About a dozen banks and other lenders are currently offering to refinance student loans at interest rates that are usually much lower than current Stafford (6.80 percent) or Grad PLUS (7.90 percent) rates. For example, competitive rates for a 10 year repayment term are around 4.50 percent to 5.00 percent. Once your loans are refinanced, your payments will be based on the current balance, interest rate and term length, rather than your income. A couple of lenders give you the option to make minimal to no payment while in training and allow loan forgiveness upon death or disability. Three of the most popular lenders we see in the marketplace are DR Bank, Link Capital and SoFi. From our observation, these three lenders tend to be a great fit due to their competitive interest rates and loan provisions, though other lenders can be a good option too (we have no affiliation with DR Bank, Link Capital, SoFi or any other lender).
One word of caution before you refinance your loans is that it is an irrevocable decision. Your federal loans will no longer qualify for the public service loan forgiveness program after they are refinanced with a private lender. For this reason, we would encourage you to think carefully before refinancing your loans. If there is small chance you may work for a public service loan forgiveness qualifying employer, then you may want to keep your options open and leave your federal loans in income-based repayment until you are certain of your post-training plans.
Student loans can have a positive impact by allowing you to pursue a career in medicine and do what you love; working in a white coat would likely have been impossible without them. They can also be one of the more difficult pieces of your financial plan, not because they are extremely complicated, but because how to best repay them depends on several factors that may not be clear today or even for a few years. While you may not know exactly where your career path will lead, considering your loan options while in training can position yourself to take advantage of favorable forgiveness and refinancing options afterwards.
If you have questions on your student loans, we would encourage you to meet with a financial advisor who is familiar with the forgiveness and repayment programs available to cardiologists and other medical professionals.
Written by Marshall Weintraub and Michael Merrill, CFP, CLU, ChFC.