When Should You Consider Refinancing Your Dental School Loans?
Student loans are a fact of life for most dentists. According to the ASDA, the average dental school graduate accumulates more than $241,000 in student loan debt. Having that much debt can cause a lot of stress and make it tough to achieve professional and financial goals, such as buying another practice or being able to afford a home.
So it’s little wonder that dentists these days are looking for ways to quickly and efficiently pay off their student loan debt and refinancing is one of those ways. When refinancing high interest rate debt at lower interest rates, you can save money on total interest and either lower your monthly payments or pay off your loans sooner. For example, at SoFi (a leading marketplace lender and the largest provider of student loan refinancing), the average dentist borrower saves closer to around $40K[i].
Sounds like a no-brainer, right? For some borrowers, it is but it’s not for everyone. It’s important to understand up front when it makes sense to refinance your school loans and when it makes sense to hold off or pursue other strategies.
Here are three signs you may be a good candidate:
Your student loans have high interest rates
Federal loan interest rates for borrowers in graduate or professional degree programs (like dental school) are much higher than the rates for undergrads–and it’s pretty common for dental borrowers to have to dip into even higher interest rate private loans, as well. Also, if you took out federal unsubsidized or PLUS loans between 2006 and 2012, you got an unusually high interest rate versus other loan rates out there.
With prevailing interest rates still at very low levels, it’s possible to get a much lower rate through refinancing.
Your financial situation has improved since you took out a student loan
Most dentists have to spend a few years after dental school paying their dues before earning a higher income. If you take great care of your credit during that time, you could set yourself up for refinancing success, because a higher credit score and income level are key to helping you qualify for a lower interest rate.
For those who expect to stay on an upward financial trajectory, you may even consider refinancing your loans to a variable rate student loan. Variable rate loans typically provide lower interest rates than fixed rate loans (for example, SoFi’s variable rate loan offers rates as low as 1.90% APR with AutoPay). However, the rate is tied to prevailing interest rates, which are very low today but should go up over time. The upshot of variable rate loans is that these loans are usually best suited for qualified borrowers who intend to pay off their loans at a relatively fast pace.
You do not benefit from any federal loan protections
While refinancing high interest rate private loans can be a pretty easy decision to make, when it comes to refinancing federal loans, there are more considerations to be aware of.
Some federal student loans offer certain benefits and protections to borrowers that do not transfer to private lenders through the process of refinancing. These benefits include potential loan forgiveness (for things like becoming a teacher or working in the public sector), deferment and forbearance (although some private lenders do offer the latter), and income-driven and graduated repayment plans. If you expect to qualify for or use any of these things, it’s usually a safer bet to keep your federal loans as they are.
Tiffany Danyal, a member of the Michigan Dental Association had a great experience refinancing her loans saying, “I worked with SoFi to refinance my student loans and I am so glad I did. I saved $47,000 and shortened the pay-back term by three years. I am paying a little bit more per month, but it is worth it for the long-term savings. SoFi was easy to work with and the refinance went smoothly and fast. I recommend SoFi to MDA members who want to better manage their student loan debt and get on a faster track to financial freedom.”
If refinancing sounds like it might be right for you, consider refinancing with SoFi. SoFi offers competitive rates as well as career and job search mentoring, entrepreneurship support, and other member benefits which means you may gain more than cost savings when you refinance your student loans.
[i] Average savings calculation is based on all SoFi Dental borrowers who refinanced between 2/1/15 and 6/16/15. Prior to refinancing, borrowers taking 5 and 10-year terms had an average balance of $173,143 and lifetime payment of $250,680 at a rate of 6.67%, and borrowers taking 15 and 20-year terms had an average balance of $268,186 and lifetime payment of $435,376 at a rate of 6.82%. After refinancing, 5 and 10-year borrowers have an average lifetime payment of $207,079, and 15 and 20-year borrowers have an average lifetime payment of $400,461, based on a weighted average of new rates received across both types (fixed and variable) and respective loan terms with AutoPay. Savings calculation assumes no change in interest rates, on-time payments, and no prepayment of loans. Borrowers refinancing loans into longer terms typically forfeit savings for lower monthly payments.
For more information on SoFi’s Student Loan Refinancing, visit sofi.com/DentalGeek