Is it Time to Refinance Your Student Loans?

Dentists, young and old, have student loans. That hard-earned education provides a great future, but it can leave a lasting impression on the bank account. In many cases, the debt accumulation total is astonishing. According to the American Dental Education Association, the average dental student graduates with $247,227  of debt. The average annual tuition for dental students is $38,8261 for in-state schools and $53,7741 for out-of-state schools.

To achieve financial goals, most dentists need to efficiently pay off their debt and make the most of the income they are bringing in. Just like refinancing a mortgage, student loans can be refinanced at a lower interest rate. Interest rates for graduate and professional school have been higher than prevailing rates for a number of years, which means it can be possible for dental school graduates to get a lower rate through refinancing.

Refinancing can have big benefits like lower monthly payments or a reduced payment term and can save a significant amount of interest over the remaining life of the loan. More than one student loan can be reconsolidated through refinancing, which saves dentists the time and hassle of making multiple monthly payments.

Need the hard numbers? Let’s assume a dentist has $250,000 in student loans at a 6.8% weighted average interest rate and 10-year term (6.8% was the going rate for federal unsubsidized loans from 2006 to 2013). The monthly loan payment would be about $2,875 per month, meaning that dentist would pay about $95,000 in interest over the life of the loan. If that rate can be reduced by even one percentage point to 5.8%, the monthly payment goes down by about $125 per month—a savings of $15,000 in total interest.

Typically, the stronger your financial picture, the lower the rate for which you can qualify. Qualified applicants can choose from a number of options such as payment term and variable versus fixed interest rate. Each of these options can affect the monthly payment and total interest amount. It is also important to note that federal student loans come with certain benefits, such as income-based repayment and loan forgiveness, that don’t transfer to private lenders. Before refinancing your federal student loans, you should always check to see if any of these programs apply to you.

Deciding if refinancing is the right choice comes down to three factors:

1. 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 (see below).  With prevailing interest rates still at very low levels, it’s possible to get a much lower rate through refinancing.

2. Your financial situation has improved since you took out the loans.

Most dentists have to spend a few years after dental school paying their dues before the higher income starts to kick in. 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.

If you expect to stay on an upward financial trajectory, you might even consider refinancing with a variable rate student loan.  Variable rate loans typically offer lower interest rates than fixed rate loans.  However, it is important to remember that the rate is tied to prevailing interest rates, which are very low today but should go up over time.  The upshot is that these loans are usually best suited for qualified borrowers who intend to pay off their loans at a relatively fast pace.

3. You don’t benefit from federal loan protections.

Refinancing high interest rate private loans can be a pretty easy decision to make, but when it comes to refinancing federal loans, there are some considerations to be aware of. Some federal student loans offer certain benefits and protections for borrowers, which do not transfer to private lenders through the refinance process. 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 leave federal loans where they are.

If refinancing sounds like it might be right for you, the next step is to do a little research—check out several private loan providers to compare interest rates and other features.

The CDA endorses SoFi to provide members with a student loan refinancing benefit to help them tackle their student loans. Through this partnership, CDA members and their friends and families receive a $500 welcome bonus* upon refinancing through SoFi.com/CoDA.

Dental borrowers who refinance with SoFi save $49,748 on average over the lifetime of their loans. To date, SoFi has originated over $8 billion of loans for over 130,000 borrowers. SoFi’s non-traditional underwriting approach looks at more than just credit scores when it qualifies a client for refinancing; it uses a number of factors including track record of paying bills, employment history and income relative to outstanding debt.