The following is a Q&A guest post from a good friend of mine, who wishes to be anonymous. We have no financial relationship to disclose.
Here’s a list of great lenders to refinance your student loans with. (Note: by using the link, you will be supporting my website and getting a cash bonus yourself upon loan closure.)
- Prior to refinancing with DRB, what payment plan were you on for your fed loans? What was your monthly payment requirement?
Prior to refinancing my loans they were through the Federal government. At that time I was doing income based repayment with a payment plan of $443 a month.
- What are the amounts of your student loans and their respective interest rates and lengths of terms? (For example, private bank loan at 8% fixed rate to be paid off in five years)
My loan total was around $375,000 with a 6.75% rate over a 30 year repayment plan.
- Why did you refinance your student loans at the beginning of pgy4, instead of waiting to see if you can qualify for public service loan forgiveness?
I refinanced because I wanted to start taking action towards my loans. With the 6.75% my interest per month was near $2000. It would be very difficult to pay any amount above this much interest; in other words, I was watching my loan balance ballooning over time.
I didn’t feel that loan forgiveness was the best option for me because I didn’t want my job selection to be limited. I didn’t want to stress about finding a place that qualified for the forgiveness program. Plus I want to aggressively pay my loans off once I become an attending and not prolong the payment period to 10 years when I believe I can pay them off in 7. I agree with you that since no one can guarantee they CAN find a forgiveness-eligible job immediately after finishing training, it is definitely possible that people will make IBR payments more than 10 years total.
- What additional information, other than the initial online application did DRB request from you?
DRB only requested my tax forms from the prior year, some income verification forms and a 45 day payoff from the company they were going to buy the loan from. It was a very smooth process and their customer service is amazing. Never a long wait and they are always happy to answer your questions.
- What refinancing options did DRB offer?
The options I received from them were:
| 10 | 15 | 20 | |||
| Rate* | Fixed | 5.65% | 6.00% | 6.25% | |
| Variable | 4.01% | 4.26% | 4.46% |
*These rates include the 0.25% discount with monthly automatic debit.
- What interest rate and length of term did you refinance to?
10 year fixed 5.65%.
- Why did you choose fixed interest rate over variable interest rate?
I choose a fixed rate because I didn’t trust the market right now and the potential for the interest rates to increase over the next couple years. If I could start paying off the loans aggressively now, I would have considered variable. But the reality is I won’t be able to do that till 3 years from now.
- Does refinancing your student loans to lower interest rate change how you direct your cash flow? For instance, are you redirecting the difference between your pre-refinance payment and post-refinance payment towards retirement savings?
I’m using that extra money to invest in a Roth IRA and 401K, something I haven’t had the opportunity to do before refinancing my student loans.
- What were the pros and cons you considered prior to signing your refinancing contract?
The benefit of DRB was the lower interest rate, which will save me money in the long run. Additionally, benefits of their service was only paying $100 per month instead of the $443 I was originally paying. They also don’t capitalize your accumulated interest until you finish fellowship, instead of capitalizing every year like most other companies.
- DRB advertises a wide range of interest rate from 2.13% to 7%. Why isn’t your interest rate lower than 5.65%?
Answer by DWM:
4 major factors determine the interest rate: variable vs. fixed, length of term, debt-to-income ratio, as well as supply and demand of these student loan refinancing opportunities. In general, fixed, longer term, higher debt-to-income ratio, and smaller supply of these refinancing opportunities lead to a higher interest rate.
Upon finishing training, he can refinance his student loan again, where at least 3 of 4 factors would have improved: shorter term (7 year instead of 10), lower debt-to-income ratio, and many more companies refinance attending doctors than the current 2 refinancing PGY’s. When the companies compete for his business, he gets to choose the best interest rate/term.
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