Financial health is a primary consideration for doctors of optometry at the start of their careers, and student loan debt management plays a significant role in achieving financial security. Doctors who analyze their options and optimize their student loan repayment strategy have the potential to reduce their student loan debt and redirect more of their hard-earned money to other financial goals. One repayment option, student loan refinancing, can help doctors improve the repayment terms of their loans, or possibly save them thousands of dollars over the life of their loans.
Alex Macielak, manager of business development at Laurel Road, an AOAExcel®-endorsed business partner, answers frequently asked questions about student loan refinancing and navigating the federal student loan payment and interest holiday.
What is student loan refinancing?
When a doctor refinances their student loans, a private lender will pay off the existing student loans and provide a single new loan with new terms. Student loan refinancing can help potentially lower the interest rate or shorten or lengthen the loan term to better fit a monthly budget. It also can help to simplify repayment strategy by giving the doctor just one loan to manage, rather than several different loans with different interest rates if they choose to refinance all their student loans at once.
A doctor can refinance federal student loans, private loans or both. If the refinanced loan has the same or shorter loan term and the interest rate is lower than the rates of the original student loans, the doctor could potentially save thousands over the life of the loan.
Are doctors required to refinance all their student loans at once?
Student loan refinancing is not an all or nothing repayment option, so a doctor is able to decide which loans they’d like to include when refinancing. This could be an attractive option if they want to pursue federal student loan forgiveness, but they also have private loans that they’d like to refinance for potentially improved loan terms or a better interest rate.
Can a doctor refinance their student loans more than once?
Yes, it is possible to refinance loans multiple times when lenders are offering better interest rates. If a doctor decides to re-refinance their student loans, they also will need to consider if there are any refinancing fees that will outweigh their potential savings and if the new loan terms put them in a favorable position to save on the loans.
What’s the difference between refinancing and consolidation?
When refinancing, the student takes out a new loan with a private lender, which is different from loan consolidation offered by the government (though the two are sometimes confused).
When a doctor chooses to consolidate with the government, for example, the doctor may simplify their repayment by combining loans into one monthly payment, but they are unlikely to receive any interest savings. A Direct Consolidation Loan from the federal government combines existing loans into one loan with an interest rate that is based on the weighted average of the interest rates of the loans being consolidated.
When a doctor chooses to refinance their student loans, they are taking out a brand-new loan from a private lender with a new interest rate based on the doctor’s credit profile, which could potentially help them save interest over the life of the loan.
What steps can doctors take to optimize their student loan repayment strategy following the expiration of the federal student loan interest and payment holiday?
- Know where their loans are. Doctors need to know what they owe and whom their loan servicers are.
- Evaluate federal loan repayment options. Because most borrowers hold primarily federal loans, evaluating the current federal repayment options is a good second step to repayment strategizing. Federal programs may include Public Service Loan Forgiveness, Income Driven Repayment, etc.
- Evaluate student loan refinancing options. With prevailing interest rates near historic lows, looking into refinancing would serve many borrowers well. It is important to recognize that borrowers will lose access to federal loan programs such as those above by refinancing.
What benefits do AOA members receive through Laurel Road?
In addition to the thousands of dollars in potential savings from refinancing, AOA members could save even more with a 0.25% rate discount if they refinance with Laurel Road.
For example, if a doctor has a $150,000 loan balance with a 10-year term and a 4.5% interest rate, the doctor could pay up to $36,549.14 in interest, assuming no overpayments. With a 4.25% interest rate, however, the doctor would pay up to $34,387.56, potentially saving them up to $2,161.58 over the life of the loan.
Why is student loan refinancing a good option for doctors?
Through refinancing, doctors could save over the life of their loan, setting them up for greater financial health over the course of their careers. The savings from refinancing can go a long way for doctors—from setting up their own practice to helping pay for other major life milestones, such as home-ownership, that otherwise might be delayed or forgone due to outstanding debt.
Student loan refinancing
While the AOA, and others, urge HHS to rethink implementation of this No Surprises Act provision, an upcoming #AskAOA webinar will help doctors meet the requirements that took effect Jan. 1, 2022.