an option, the interest rates on your
loans will dictate how aggressively
you should pay them off.
What is a private loan refnance
and does it make sense?
In the past few years, several private
(nongovernment) lenders have entered into the student loan refinance
market and offer repayment terms
that are far more favorable than the
6%, 7%, or 8% interest rates attached to government loans.
A private loan refinance is not for everybody. If you expect to be eligible for
one of the many forgiveness programs,
it may not be for you. However, if you
have high-interest-rate government (or
private) loans and are not eligible for
any forgiveness programs, you should
absolutely consider the pros and cons
of refinancing all or some of your existing loans. Interest rates on private
refinances can be as low as 2%, but are
typically 3%-6%. You have the choice
of a variable interest rate or a fixed
interest rate. Repayment terms are
generally from 5 to 20 years.
We have received extremely favorable feedback about two private lenders in particular: SOFI (Social Finance)
and DRB (Darien Rowayton Bank).
If you are contemplating a refinance,
we encourage you to contact both of
these lenders and compare offerings.
There are links at the end of this article that offer bonuses if you refinance
with either of these companies.
Should I consolidate
my federal loans?
Prior to 2006, it was advantageous to
consolidate federal loans because it
significantly lowered interest rates.
Since then, the federal consolidation
landscape has changed. If you do a
federal consolidation today, the in-
terest rates on all of the consolidated
loans are averaged together. Chances
are that engaging in a federal consoli-
dation will not save you money; it will
simply make record keeping easier. If
you do a consolidation and extend the
payment period of the loan, you may
actually pay more money in interest
over time compared to if you did not
consolidate. It is important to know
that a consolidation is one of the ways
to get out of “default” and get back
into a current repayment plan.
Can I refnance some, but
not all, of my loans?
Yes, you can selectively pick which
loans you want to “leave alone” and
which loans you want to refinance or
If I get into a bind with my
loans, what should I do?
We always recommended that you
contact the servicer of your loan to
find out what your options are. If you
come upon a financial hardship, there
may be some relief available but you
need to ask for help in order to receive it. During a medical residency,
forbearance is an option on your federal loans. In fellowship, deferment is
an option for your federal loans.
Should I pay off my loans
before purchasing a home?
There is no “right” answer to this question; however, there are certain factors
that you need to take into account
when weighing the options. What is
the interest rate on the student loans?
Are you eligible for a tax deduction of
$2,500 for student loan interest? What
interest rate would the home mortgage
be? What tax bracket are you currently
in and do you see yourself being in
over the next 5 or 10 years? How will
the student loans be counted toward
your debt-to-income ratios to qualify
for a mortgage approval?
Most people would rather borrow
as much money as they can at 3%
or 4% (tax deductible) toward the
purchase of a home and use current
savings and cash flow to pay off
high-interest-rate student loans (few
or no tax benefits). No two situations
are the same and we recommend
that you weigh your options and de-
cide which plan best suits your goals.
Developing a plan for either paying off your student loans or making
yourself eligible for a forgiveness
program are important steps toward
the makings of a bright financial
future. There are many resources
available to borrowers and taking a
proactive approach toward managing
your student loans will certainly benefit your situation over time. n
action – Federal Student Aid – U.S. Dept. of
ed/79048/ student_loan_repayment.html –
American Association of Medical Colleges
http://www.direct.ed.gov/calc.html – Loan Calculators and Interest Rates
http://pgpresents.com/ – Student Loan Consulting – Paul Garrard
SOFI – Link to refinance and receive $200 welcome bonus
– DRB Education Refinance – Link to refinance
and receive $200 referral bonus