Many people look at their student loans, especially after medical school, and feel their stomach drop. Thinking about how to repay that much debt can make your head spin. Even on a physician’s above average salary, it’s tough to fathom a world where becoming debt free anytime soon is feasible. Some Americans who carry student loan debt turn to consolidation and refinancing to help them cut back on total interest owed and speed up the repayment process.

While this may work for the majority of people who are in a non-public-service career field, for physicians it could potentially put you in a position where you lose money in the long run if you don’t consolidate and refinance correctly. Understanding how consolidation and refinancing work when it comes to your student loans and building a strategy that works for your unique situation is key to saving money on your student loans and getting on the path to becoming debt free.

How Do Loan Consolidation and Refinancing Work?

When you graduate with your degree, whether you’ve been through medical school or just an undergraduate program, you likely have several different loans. Some of them may be loans from the federal government, while others might be from private lenders. People look toward consolidation for a few different reasons:

  1. It’s a pain to track that many different loan payments each month, they want a single-payment solution.
  2. Consolidation with additional refinancing offers a lower interest rate than some of their existing loans.
  3. They want to shorten their repayment timeline by choosing a different repayment method with their new, consolidated loan.

While all of these are valid goals to strive for, they ignore the realities of loan consolidation and refinancing. First, it’s important to understand that consolidation and refinancing are not synonymous. You can, in some cases, refinance your private loans to gain a lower interest rate without consolidating multiple loans into one, new loan.

Second, people tend to miss the fact that consolidation and refinancing isn’t a one-size-fits-all solution. This is especially true for physicians. Although it’s tempting to believe that refinancing and consolidating will simplify your financial life and reduce your student loan interest rate, consolidating and refinancing your loans can negate your eligibility for PSLF (Public Service Loan Forgiveness) if done incorrectly. The key is to know your own personal loan situation, and how consolidation and refinancing will impact you.

When Shouldn’t You Consolidate and Refinance?

If you’re a physician, you need to go through the loan consolidation and refinancing process correctly in order to still qualify for PSLF. PSLF is a program where you qualify for loan forgiveness (or partial loan forgiveness) if you work in a public service sector. For physicians who are employed by a hospital or medical organization that has a non-profit 501(c)(3) status, you likely qualify for PSLF.

To learn more about PSLF, check out our comprehensive guide HERE.

However, if you pursue a Direct Consolidation Loan from the federal government, any payments you’ve already made toward PSLF qualification will be negated under the new, consolidated loan. So, if you’ve already been paying down your loan using an Income Driven Repayment plan for several years and are close to qualifying for PSLF, consolidation may not be in your best interest.

When Should You Consolidate and Refinance?

If you’re newly out of residency, or you’re either still in your grace period or early in your repayment, consolidation and refinancing may work for you. By consolidating your federal loans into one loan, you can potentially lower your interest and simplify your monthly loan payments. You might also consider refinancing your private loans to get a better interest rate, as well. Your final option is to consolidate and refinance both public and private loans into one private loan. This option is a little bit trickier to navigate, and could potentially negate the ability to qualify for PSLF.

At the end of the day, it’s best to discuss your loans with a financial planner who is experienced with both physicians and PSLF. At Wealth Habits, we offer a Free Student Loan Repayment Analysis for physicians because we know how overwhelming making the decision to repay your loans can be. You deserve to find a repayment strategy that gets you out of debt quickly while saving money where and when you can using strategies like consolidation and refinancing. Want to know more? Contact us today! We’d love to talk to you about your unique financial situation, your goals, and how we can help you to manage your student debt.

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