Now Is the Time to Refinance Student Loans

MAY 14, 2018
I’ve written several articles previously about the pros and cons of refinancing student loans, but I think a couple points are worth repeating with thousands of pharmacy students graduating across the country this month. Additionally, this is a hot topic with interest rates starting to slowly increase1-3 from rates that have been at 10-year lowsand with the average pharmacy student graduating with nearly $160,000 in student loan debt.

All of this means if you’re like most pharmacy graduates with a significant amount of student loans, it’s time to seriously consider whether refinancing is right for you.
 
Refinancing 101
When talking to people about managing their student loans I find there is often confusion about the difference between consolidation and refinancing, so let’s take a closer look between the two terms.

Consolidation5
This involves combining multiple loans into one giant loan. In general, consolidation can be subdivided into federal and private loan consolidation. 
 
Federal loan consolidation is a government program allowing you to combine multiple federal loans into one single loan. The interest rate on your new loan becomes a weighted average of the prior loan rates. Therefore, this process won’t end up saving you money or change your monthly payment (assuming you don’t extend the repayment period). The major benefit is convenience, as you will end up with fewer bills to pay and keep track of each month.
 
Private loan consolidation also allows you to combine multiple loans into one. The major difference is the interest rate on the new consolidated loan isn’t a weighted average based on your old loans, but rather calculated based on a number of different factors. In practical terms, when you consolidate student loans with a private lender, you’re also refinancing them.
 
Refinancing5
This means you use a new loan to pay off one or more existing loans. Again, this process results in a new interest rate on the consolidated loan. The specific interest rate is based on your credit history, salary, total amount owed, and a number of other factors.
 
This can result in benefits including lowered monthly payments, paying off loans quicker, saving money on interest, and the convenience of paying only one monthly bill. Some private lenders will only refinance private loans, whereas others will refinance both private and federal student loans for additional convenience and cost savings. Additionally, if no co-signer is needed on the new refinanced loan, then parents can be removed if they had originally cosigned. Refinancing can be especially valuable for new graduates with interest rates on loans over 8-9%.
 
On the flip side, refinancing your private and federal loans together means giving up favorable repayment terms like IBR plans and public service loan forgiveness. Although these may not be commonly used repayment options for the majority of pharmacists, you should consider all your options before refinancing.
 
How to refinance
Last May, I wrote an article extensively detailing my personal experience refinancing my student loans from pharmacy school. Essentially, once you decide that you may benefit from refinancing it’s time find some vendors to compare your options. There are a number of different banks and institutions available through a quick Google search. Getting a refinanced interest rate is easy and doesn’t require more than filling out a few forms.
 
I ended up refinancing through , as I found them to offer the best resources, repayment plans, and interest rates. There are certainly other options to consider but again I can only speak to my personal experience.
 
My Story
In 2015, I graduated with over $150,000 in student loans from pharmacy school. At the time, it felt like an insurmountable amount of money to pay back, especially considering I took a substantial pay cut to complete a 1-year residency after graduating. The monthly payments were extremely high and to make matters more confusing, I had multiple loan providers between my private and federal loans, with some in my name and some in my parent’s name. The interest rates on these loans varied from 6.5% to 8%.
 
After finishing my residency, I knew I had to take a close look at my financial situation and make a plan to aggressively start paying off these loans. After extensive research, I decided to refinance my student loans through SoFi, an institution that offers a number of different loan types through a “nontraditional” approach.
 
While there are a number of vendors to refinance student loans, again I found SoFi to offer the best interest rates and resources. In particular, SoFI charges no fees to refinance, no penalties to make additional payments, and a variety of loan terms and rates. Refinancing through SoFI will save me over $15,000 in cumulative payments over a 10-year term by lowering my interest rate to 5%. It also provided the additional benefit of removing my parents from my loans. I personally did not need a co-signer on my loan due to my pharmacist salary and credit score, although this may vary based on your situation.
 
Bottom Line
Refinancing your student loans from pharmacy school can potentially save you a significant amount of money while providing the convenience of making one payment a month. Keep in mind refinancing may not be for everyone. Individuals with a poor credit history, low salary from a pharmacy residency or fellowship, or those who want to keep the provisions in federal loans may want to closely consider their options before jumping right into refinancing their loans.

References
  1. Carrns A. Warning: Federal Student Loan Rates Are About to Rise. The New York Times. May 12 2017. Available at:
  2. Dickler J. Student loan interest rates edge higher and higher. CNBC. July 18 2017. Available at:
  3. Carter M. What the fed's interest rate hikes mean for student loan borrowers April 24 2018. Available at:
  4. Cooper P. Most Student Loan Interest Rates Fall To Ten-Year Lows. Forbes. May 11 2016. Available at:
  5. Macklin D. Student Loan Options: What is Refinancing vs Consolidation. SoFi. July 26 2016. Available at: https://www.sofi.com/blog/student-loan-smarts-consolidation-vs-refinancing-2/


Timothy O'Shea, PharmD
Timothy O'Shea, PharmD, is a Clinical Pharmacist working at a large health insurance plan on the east coast. Additionally he works per diem at a retail pharmacy chain. He graduated from MCPHS University - Boston in 2015 and subsequently completed a PGY-1 Managed Care Pharmacy Residency. His professional interests include pharmacy legislation and managed care pharmacy. He can be followed on Twitter at @toshea125.
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