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Should You Refinance Your Student Loans? Thumbnail

Should You Refinance Your Student Loans?

Insights Student Loan Debt

If you are a healthcare professional with what feels like a mountain of student loan debt,  it can sometimes make sense to look at refinancing it through a private lender to try to get a lower interest rate and reduce your monthly payments.  But depending on your credit and employment situation, there could be a few reasons for you to think twice before pulling the trigger on refinancing your student loans. 

  1. Your credit - Federal student loan rates are not based on your credit score or your credit history.  Rather the rate is based on the type of loan and is the same for everyone taking out that type of loan.  On the other hand, private lenders are a bit more picky.   They typically require scores in the 700's and some kind of credit history.  If you are a fresh college graduate without much credit history you may need a parent to co-sign on a private loan in order to qualify.  It's generally best to avoid having a co-signer as they are fully on the hook for the debt as well.   Another often overlooked fact is that if your co-signer passes away, some private lenders will then state that your total outstanding debt is now immediately due.  If you do get approved, depending on your credit score, your new private loan rate may not be much lower than your federal loan rate, therefore defeating the purpose of the refinance.  If you are going to go down this road it's important to shop around for rates.  
  2. You work for a non-profit healthcare system - Also known as a 501(c), if your hospital is a nonprofit organization, you may qualify for PSLF ( Public Service Loan Forgiveness).  If you work for a 501(c), the government may forgive your outstanding principal and interest after making 120 qualifying payments.  It's extremely important to understand what constitutes a qualifying payment.  One of the criteria for this is that you have to be enrolled in a federal income-driven repayment plan.  This means the loans you have refinanced through a private lender don't apply.  Once your loans are private, there is no way to change your mind and enroll them in an income-driven repayment plan.   So based on your current or future employment, if you think there is a chance you will qualify for PSLF, you need to reconsider refinancing. 
  3. Political Uncertainty - We have no way of knowing if any of the mass forgiveness plans being thrown around by political candidates will ever become a reality.  If any kind of mass forgiveness was ever enacted, it might require a compromise where only federal debt would be forgiven because it would be much easier for the federal government to just stop collecting payments.  When it comes to forgiving private student loan debt, the government would have to actually send a lot of large checks to a lot of private loan companies.   If you know with absolutely certainty that you will never need access to an income-driven plan or qualify for PSLF, and you have good credit, it probably makes sense to go ahead and refinance. If that is not the case, it may make sense to hold off to see how the election shakes out.