Refinance or PSLF?

[pedstar09]

First year resident here. I have debt of $213k, all consolidated with Fed loans at 5.75% right now..I have RePAYE and currently have $0 per month until next year.

1. Should I still pay ~300 (I think I can afford that..) just so that interest does not accrue as much in the end.
2. Should I refinance? With SoFi, I anticipate rate of 3-5%. Obviously, long term refinance is better due to low interest rates, but with PSLF, I am tempted to pay the least I have to.

Our education secretary obviously is not going to help this situation.

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[JeffWasHere]

What field are you in/what is income range of your field?

 

[JeffWasHere]

Additionally, what is your financial state right now? For example, if you have family support and have a lot of additional income, then yes it might make sense to pay your loan off sooner rather than later. If you are fully supporting yourself, then residency salary isn't much to live by and maybe keeping low payments might make more sense in terms of quality of life (aka if that $300/month will make your life better on a resident salary, than the future $500/month you will spend on an attending salary, then it's worth it..)

 

[pedstar09]

In Pediatrics..will also likely be specialize in that pays more than general salary. I anticipate 200-250K once I become a full time attending. My wife is a student currently and will not be done until I finish residency. My dad may provide some financial support if needed.

 

[InvestingDoc]

I think we are going to need a more detailed breakdown of your budget to see if its something that you are even able to do. You wrote that you think you can spare $300 a month, but lets say that you refinance your loans to 3% interest rate. Interest alone will be about $600-700 a month. If you don't have >$800 in your budget for loan repayment then this is not even an option for you and you will need to continue an income based repayment plan till your budget can afford a regular student loan repayment.

 

[pedstar09]

Ohh ok. See, I did not know that it would be that much under refinancing, but that makes sense. I am fairly new to all this, so thanks all so much for your inputs!

 

[RangerBob]

A few things worth pointing out:

1) If you consolidate with DRB, you make $100 payments per month. There is another lender that will refinance residents' loans and they don't charge any monthly payment (LinkCapital?), but my understanding is they are not currently accepting applications.

2) It's highly unlikely you'd get a rate of 3% when you consolidate. I consolidate my private loans when I became a resident, took a 5-year rate (the shortest-term you can take, which gets you the lowest rates), and I applied when residents were getting rates 1-2% lower than what they are getting now. I was offered a fixed rate loan of 4.25% (variable rate was 4.0%, so I opted for fixed).

3) REPAYE, assuming you make the monthly payments, will cover half of your unpaid unsubidized interest (and all of your unpaid subsidized interest, if you have any). If you currently are making $0 payments (hard to get by the way, but I hear a few others have managed) then you're effective interest rate is basically cut in half.

Bottom line--I recommend sticking with REPAYE. The odds are it's probably still cheaper even when you start paying $300 monthly payments due to the interest subsidy, but you can calculate it. But you get all sorts of protections with federal loans you won't get if you refinance. Who knows if PSLF will stick around (probably not...), but a lot of the other benefits aren't going anywhere. Maybe if you get a really great rate, but I'm guessing you're not going to consolidate all $200k into a 5-year variable rate loan, which is what's going to be cheapest.

But, consolidating when you're an attending may make sense--if you're not going to be benefiting from PSLF and you're now paying more than the accumulating interest (and thus you wouldn't get the REPAYE interest subsidy benefit), then the playing fields may be more even.

 

[Splash Financial]

Hi, if your rate is 5.75% with your federal loans, then we agree it likely makes sense to stay on REPAYE.

With your current loans, you have ~$1,020 in monthly interest ($213k *.0575/12), but since you're on REPAYE the government will pay half of that interest, so only $510 is added to your loan balance each month. Eventually, you will need to make a payment on REPAYE which will be around $300. Once that happens, the government will still pay ~$350 of your interest. Therefore, REPAYE is providing a $4k-$6k extra benefit each year through the government's subsidy. A refinance company would need to offer a very low rate (lower than 3.75% right now) OR you would need to be in a position where the $300+ per month payment was too much. For many residents, especially in large cities, the $300 per month payment is a lot which makes DRB, Link Capital and our company (Splash Financial) worth looking into, especially if the alternative is deferment. If you can't afford the REPAYE required payment, you don't get the subsidy. Also, married couples don't get as much of a benefit.

You would likely also not qualify for SoFi due to your income (being a resident) and not wanting to make a full loan payment which is required.

The reason why we are commenting on this thread is RangerBob above referenced our company (www.splashfinancial.com), however we are now accepting applications. Previously we were only in Ohio. We are a refinance company specifically for residents and fellows. We allow borrowers to defer their loan payments while they are in training. Link Capital charges $75 per month and DRB requires $100 payments per month.

In your particular situation, we would recommend refinancing immediately after your residency to a rate lower than 5.75%.

While we would likely not advise our product for your specific scenario, feel free to use our loan assessment tool which can provide some numbers to REPAYE: www.splashfinancial.com/calculator

Feel free to reach out to our team if you ever have any questions related to your loans - regardless of if our product is right for you. We are happy to help and have loan experts with deep knowledge of the government repayment programs.

 

[SigmaFS]

As most have stated, I recommend REPAYE while in residency and assuming you remain single. A couple of items to note:

1. Instead of paying $300/month while in REPAYE, deposit the $300/month in an interest bearing account (maybe Ally Bank). This is because accrued interest does not capitalize while in REPAYE, to generate some interest income, and delay payment to benefit from the time value of money. Then use money to pay down balance once you exit REPAYE.
2. It's likely you currently will not receive a competitive refi rate.
3. I wouldn't count on PSLF.

Good luck!