Refinance Your Medical School Loans At A Lower Rate

One of the things I feel the worst about for current students, residents, and new attendings is that not only do they have a much higher amount of student loan debt, but they are paying a ridiculously high amount on it.  Federal loans were, until recently, offered at a minimum of 6.8%, with many students now having a majority of their debt at 7.9%!  I find it completely unfair that I can get a mortgage for less than the rate of inflation, and dump it in the case of bankruptcy, but you can’t get student loans from the government for twice that AND they can’t be discharged in bankruptcy.  Thankfully, Congress and the President have provided a little bit of relief with a bill this summer that tied interest rates to treasury rates.  So now, instead of 6.8%, you’re paying 3.6% plus the 10 year treasury rate at the time the loan is made (with a cap at 9.5%), which is currently a total of 5.41%.  Direct PLUS loans are down from 7.9% to 6.41% (4.6% plus the 10 year treasury rate.)

Refinancing Issues


Perhaps the biggest difference between coming out of school a decade ago like me and coming out now, however, is the issue with refinancing.  My classmates refinanced their student loans at rates as low as 0.9% after graduation in 2003.  That’s about as close to free money as you’ll ever get.  Now, if you want to refinance your government loans, they simply take an average of all your loan rates.  It’s nice to consolidate I suppose, but it doesn’t save you any interest….until now.

Social Finance

There are currently two options available (and hopefully many more to come) where students can actually refinance their student loans at a lower interest rate.  The first of these is a company called Social Finance (SoFi).  This is actually a peer to peer lending company, not that dissimilar from Lending Club or Prosper.  They are currently loaning money to students who graduated from or are currently attending 100 schools, including my  undergraduate institution and my medical school.  The reason there are only 100 schools is that they require either alumni or institutional support for a school before they will loan there.  Currently they have only lent money to 1900 students, but I’m sure that number will grow. Rates range from 4.99%-6.99% fixed (with a 0.25% discount for autopayment), or 2.94-5.19% (capped at 8.25%) variable, again with a discount for autopayment.

I think this is a great option for a borrower.  You get lower rates than you get from the government.  It’s beyond me why an investor would be interested.  When I go shopping for peer to peer lending investments, I expect a double digit return, and there’s no way to get that when your yields are under 7%, especially if there are some defaults.

Darien Rowayton Bank

drb_educationI was approached recently by another option, the Darien Rowayton Bank (DRB), who sponsored last month’s newsletter (although I received no compensation for mentioning them in this post-feel free to call them and tell them to buy a banner ad on the site).  [Update: DRB has now purchased a banner ad that'll run during November.] They’ll refinance your loans from any institution.  These two companies have also been in a bit of a rate war as of late, and DRB has fixed rates of 4.75-5.75% and variable rates currently set at 2.76-3.01%.  That looks awfully attractive compared to the 7.9% the government is giving you.  As of this posting, DRB’s rates are at least 0.25% less than what you can get from SOFI (assuming you went to an institution where your loans quality with SOFI).  DRB also likes to point out that they have a single rate for each term (5-15 years) whereas you have to go through the SOFI application process before you can actually find out your exact rate.  The biggest benefit of using DRB over SOFI (aside from the lower rate) is that you didn’t have to attend a SOFI-approved institution.

Reasons Not To Refinance

Remember that when you refinance your loans, they are no longer eligible for the IBR or the PSLF program, and that like other student loans, SoFi and DRB loans don’t go away in bankruptcy.  You also probably don’t want to refinance subsidized loans from undergraduate, if you have any, since that subsidization will go away.  Since undergraduate loans are generally at a much lower rate anyway, that’s not really an issue.

The Mortgage Option

My favorite student loan refinancing option involves a mortgage.  If you can somehow turn a high-interest, non-dischargeable in bankruptcy, non-deductible (for most docs) student loan into a low-interest, dischargeable, deductible mortgage or home equity loan, that’s a great deal.  Unfortunately, those who have big fat student loans don’t generally have any home equity, and by the time you get some, the student loan situation isn’t so bad.

I hope to see more competition in this financial marketplace, but it’s possible that both of these companies will just go away.  Neither of them is exactly a household name.  You might want to jump on one of these options before it’s too late.  It isn’t like you can’t refinance again later.

What do you think?  Have you refinanced your student loans?  How?  Did you use one of these companies?  Are you happy with it?  Comment below!

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Comments

Refinance Your Medical School Loans At A Lower Rate — 103 Comments

  1. With DRB, what are your thoughts on the variable versus fixed interest rates?

    Please correct me if I’m wrong: I make a regular 2k-3k overpayment monthly on my loan (I’ve got approx 70k left). So, I dont really care the duration of the refinance as I plan to have it paid off in the next 2-3 years correct?

    Thanks for everything.

  2. Does anyone know if your parents have their house paid off, if they could do the mortgage option for you? Would that be safe? My parents are in between on taking 200k investment at any interest rate, but I’m only 2 years from finishing residency.

  3. Man, it seems like I’m one of the few people in my med school class that doesn’t have their parents paying for their education. Just from interest alone, by the time I finish residency I’ll be about 450k in the hole. It’s ridiculous.

    • What are your living expenses like?

      College: 10,000+15,000 living expenses=100,000 after 4 years.
      Med school: 35,000+15,000 living expenses=200,000 after 4 years.

      Yes, add your interest…

      …did you pay for all of your college expenses? You can pay back loans during residency and live for less than 15,000 without hardship. I live on 10,000 a year but most don’t live as frugally as I do, I recognize.

  4. Do you have a referral link for sofi? Would like to hook you up. Your site is fantastic, thanks so much! Also, how risky do you think a 10 year variable rate would be? I like that SoFi caps just below 9% max. I can afford that should it happen but DRB’s 18% is too risky for me.

    • Make sure when you compare DRB to SoFi, you look at the actual rate SoFi offers you and not just the cap. Even if SoFi’s cap is lower, their rate is probably going to be much higher than DRB, making it less less attractive than the DRB rate. Note that DRB’s rates are the actual rates offered, as opposed to SoFi’s which are a range of rates, so it is quite possible that the actual SoFi rate will be much higher than what DRB is offering. It also might be worth comparing the floating rate SoFi offers to DRB’s fixed rate.

      • At SoFi, we’ve written a lot about how to decide between a variable or fixed rate loan, regardless of who you’re borrowing from. Whether you’re trying to decide which is right for you http://bit.ly/16cDxmW or assessing whether a variable loan will result in greater savings http://bit.ly/1b79Mrv we’ve done the analysis so you can make the decision that’s best for you.

  5. What are the risks of doing this? I consolidated all of my dental school debt through the government so now I have $400,000 of debt at a fixed 7.5% interest. It seems like a no brainer to go over to SoFi for a 4.99% rate. Whats the catch? There has to be some hidden risk involved….

    • You lose some of the protections found in federal loans (e.g., IBR). Also, there are some credit/income requirements that you will need to pass for both DRB and SoFi. Otherwise, it is a great deal. DRB’s rate are even better than SoFi’s, though, so check them out.

      • I don’t think it’s too good to be true. I can’t understand why no one jumped on this earlier. There’s a lot of distance between what a bank can borrow money at (mine pays me less than 1%) and what your non-dischargeable in bankrupty student loans are at. The only catch as mentioned is you lose access to IBR/PSLF. DRB only does these loans for professionals and SOFI only does these loans if you attend a qualifying institution.

      • It is true that SoFi does not offer borrower protections identical to those of federal loans. If our borrowers find themselves in an unfavorable situation, we determine the best way to leverage our community and be of assistance during their time of need. Our career service benefits go beyond deferment or forbearance in times of unemployment and help borrowers find their next position. It is a common myth that federal loans are always preferable to private options – checkout this and 4 other myths about refinancing student loans: http://bit.ly/1bfdegt

  6. On DRB’s website, it says that you can do a hybrid approach and do partial variable and partial fixed. Does anyone know about this?

    My situation: I’m looking at $275k in student loan debt. Would it be unwise to do a variable rate 10 year plan? The rate could potentially cap at 18% (ridiculously high), but the LIBOR hasn’t gotten above 1% in the last 5 years, and hasn’t risen above 6% in the last 20+ years.

  7. DRB will let you split that into 2 separate loans, one fixed and one floating, using the amounts you choose. They do this for people in your position with larger loans who want to take advantage of the low floating rates, but want to limit their exposure to rising rates. Call them or email them and they will walk you through how to do this.

  8. There’s obviously a risk any time you use a variable loan. You’re running the interest rate risk rather than bank. That doesn’t mean it’s not a good idea though. As long as you can afford the possibly higher payments you are likely to come out ahead in the end. I have a well-to-do friend with a variable mortgage where the rate changes every month. It’s been 1% for the last couple of years. That’s pretty nice.

    It might not be clear from his comments, but readers should be aware that AA works for DRB so I’d consider his comments authoritative since he works in the field, but obviously biased toward his own company. I don’t mean to out him (especially since DRB has supported this site through the purchase of advertisements), but I consider full disclosure of financial conflicts of interest on this blog very important in maintaining the trust of readers.

    If I had student loans I would be refinancing them through one of these two companies as soon as possible. I hope even more competitors enter this niche area, further driving down student loan rates.

  9. I’m planning to refinance my loans with DRB. (I don’t work for them.) If anyone has a referral link, please post it as I’d like to give someone a referral bonus.

  10. I emailed DRB about a concern that I had, and turns out it is valid. With a federal student loan, if you pass away unexpectedly then your debt is forgiven. However, with a loan from DRB if you pass away the debt is assessed to your estate and your spouse gets stuck with the debt. I don’t plan on dying any time soon, but there is no way my wife could ever pay off my $400k of dental school debt if I passed unexpectedly. As much as I would love to refinance and a get a lower rate, for that reason I don’t think I can do it unless they come up with a solution. I have not emailed SoFi yet, but I am sure it is the same with them too.

    • Thank you for that comment. I hadn’t thought to ask that question. You definitely have to weigh the interest savings against that risk. Keep in mind that with a big loan like that you might be able to buy an extra $400K 5-10 year life insurance policy with the interest savings and STILL come out ahead with refinancing.

      For example, if your average loan is 7.5% on $400K, and you can refinance at 5.5%, then that’s $8K per year in interest savings. A $400K 10 year level premium term insurance policy for a healthy 30 year old male is only $133 per year.

      • Agreed on using term insurance to cover your estate in the case of death. Regarding covering yourself in the case of disability, you can do something similar with disability insurance. In fact, some disability insurance providers offer an add-on specifically for paying down student loans in the event you become disabled and can no longer work in your field. The costs for this is also small relative to the savings from a lower rate on your student loans.

        • Thanks you for the responses! I already have a great disability policy. I will just need to bump my life up a little. I am seriously considering this. I really want that lower rate, it will probably save me 100k or so over the life of the loan.

          • I think everyone should be considering it. If I had loans I’d have already done this with one of these two companies. Refinancing is pretty close to a no-brainer for the vast majority of med school graduates from the last 5-10 years.

            The lenders probably don’t want to talk about this much, but these private student loans are probably easier to discharge in bankruptcy too according to this guy:

            http://www.huffingtonpost.com/steve-rhode/some-private-student-loan_b_3652935.html

            I wouldn’t count on it, but if they’re not going to let them disappear at your death like federal student loans, they can’t expect to get the special bankruptcy protection. That’s why they have relatively strict underwriting criteria.

    • Hi Brian, Elizabeth from SoFi here. As long as your wife is not a co-signer on your loan, your student loans would be forgiven if you passed away. Feel free to reach out to our customer service team directly with any questions like this: 855-456-7634.

    • I recommend an independent agent who can sell you a policy from any company. You’ll notice two who advertise on this blog if you glance at the banner ads in the left column. I’d trust either if I were in the market for disability insurance.

  11. Regarding the variable rate, there is no cap to how much it can go up from year to year (with an overall max of 18 percent).

    Is there any way I can see how historically the variable rate has changed? Could I potentially be paying 10 percent come next year?

    • Check this site out which shows historical 3 Month LIBOR going back to 1986:
      http://www.macrotrends.net/1433/historical-libor-rates-chart
      As you can see we are at historic lows, and we have been that way for a while. In addition, there are times when LIBOR makes big jumps over a one year period, so your question is a valid one. My advice is, if you are considering the variable, don’t try and predict when rates will move, and by how much, think about what it would mean for you if they do move-will you be able to handle higher monthly payments (ie. do you expect your salary to increase over time) and/or might you be in a position to prepay a portion or the whole loan if rates go up? If the answer is yes to these questions the variable could be a good choice and good way to save money. If not, it may not be worth the risk.
      Another thing to consider is splitting your loan into part fixed and part floating to mitigate some of the interest rate risk of all floating.

  12. How does refinancing affect your credit score (if at all)? Once you do so with DRB or SoFi, is the loan still considered “good debt” (or at least “could be worse debt” as I like to think of it) like student loans or a mortgage, or does it become a private consumer loan? Brian’s comment above re: leaving DRB loan debt to your spouse if you die makes me think the loan could lose all benefits of being a student loan (including how it is viewed by potential creditors). Other than losing IBR and PSLF benefits, this would be the one remaining thing keeping me from refinancing.

    As an aside, I just started a 6 year urology residency and as far as I can tell I won’t be eligible to refinance until after I get out- is this true?

    • No, it is still a student loan. But I’m not sure why you think that somehow helps your credit score. “Type of credit” only makes up 10% of your score. Pay your bills on time and your credit score will be adequate to do anything you need it for.

      You don’t want to refinance as a resident, because you probably need the lower IBR payments.

  13. Thanks for the clarification, that is helpful. By using credit score, I was meaning to get more at how my debt is viewed overall, rather than the actual raw score. My wife and I recently took out a mortgage on our first house. When I was initially shopping around, one of the first banks I spoke with quoted me at around 4%. After they realized my debt was all student loans, the quote dropped to somewhere in the high 2′s. Needless to say, I didn’t move forward with this lender, but I do believe the type of debt you carry matters more than the 10% that merely goes into calculating a credit score. There’s a human element to it, too.

    Thanks for writing this blog. I find it extremely valuable and feel fortunate I was able to come across it early on. I’m looking forward to keeping up over the coming years.

  14. Anyone have any luck financing with DRB? They’ve give me the cold shoulder since I submitted my application a month ago. I got approved from SoFi for a variable rate in the mid 4% (no explanation why I didn’t get the more competitive rate – I pay all my bills on time but have a lot of debt and my credit score is in the 700s). Wondering if this whole process is too good to be true…

    • Thank you for sharing your experience. Why not call SOFI and ask why you didn’t qualify for the better rate? Also, I wouldn’t be surprised to see the ball dropped. As the word gets out about these companies refinancing student loans, I expect them to see pretty rapid growth that may even overwhelm their relatively small staff. Since it is worth so much money to you to get a refinance, I’d bug them enough that they can’t ignore you. They may tell you they’re not willing to refinance you for some reason, but “the cold shoulder” shouldn’t be an option.

      • I was informed by DRB that they have contacted the above commenter and “worked out this issue.” Due to privacy issues, they didn’t feel comfortable mentioning that here and it wouldn’t be appropriate for them to share the details with me or on the internet. Kevin may share the details about how it was worked out if he feels so inclined.

  15. I was able to reach someone from drb over the phone who was helpful. I was a little frustrated that my emails weren’t returned but it seems to be working out now. I did contact sofi and received this response:

    SoFi considers a variety of factors when making lending decisions about your student loan refinance application. Decisions are based on your personal circumstances at the time of application and include, but are not limited to: Credit, income, work experience as well as debt burden capacity analysis.

  16. I had a similar experience as the previous poster. Submitted an application over a month ago to DRB. Several emails and phone calls later, haven’t heard a word. When I call their number, I get a secretary that transfers me to voicemail. Can’t get in touch with anyone that can talk to me about my application.

  17. Jake-I apologize for the experience you had with DRB and hope we can rectify the situation quickly. As was mentioned previously, DRB has seen a strong response to this refi loan, and our staff has been bit a stretched. We will certainly be in touch quickly to resolve your issue.
    In addition, please note we are adding more staff to the team to make sure nothing like this happens again. We are very excited about working with and investing in White Coat Investor members as well as other health professionals, and will ensure that our service matches up to the service levels you deserve.

  18. I just withdrew my application from DRB. Two months since my application and no progress. I emailed them again a week ago and nobody responded. You call their office # and get redirected to someone’s voicemail. Very poor customer service, I’d recommend avoiding DRB. I sent an application in to SoFi, and had someone calling me within 24 hours. SoFi’s rates look pretty comparable to DRB too. I probably would have gone with them originally but they were restricting their applications to graduates of schools to which they had alumni support. They have recently opened it up to include most schools (maybe all in the US, not sure). Anyway, they seem like a much better lender to do business with – just FYI.

      • In response to the posting above, please note the following:
        1. DRB is an FDIC insured bank in Connecticut. Please feel free to look us up on the below FDIC website.
        http://www2.fdic.gov/idasp/main.asp.
        Just type in our name in the “Institution Name” section. This should provide you comfort that we are an established and regulated institution.
        2. As I mentioned in an above post, when we first launched this program for doctors, the response was overwhelming, and we were not able to provide the service and response time that our borrowers deserve. Since then, we have improved our processes significantly and hired a larger team to ensure all of our applicants receive the highest level of service. I will not comment on the specifics of the post above, but I will say that this type of experience is atypical for our borrowers. Right now, we respond to all email questions within 1 business day and have many more people available to answer and return calls during business hours.
        3. We have already save hundreds of borrowers thousands of dollars each on their student loans and continue to do so every day. Our rates are by far the lowest in the country and lower than the competitors referred to on this site. For those of you who want the lowest rates in the market, I would suggest you apply to DRB, as we currently offer the best rates and are improving our service every day.

  19. I just finished my refi w/DRB – they seemed reasonably responsive albeit the whole process took a while.

    I ended w/a 2.99 variable. I’ll certainly be watching my credit and loan closely to make sure nothing suspicious goes on.

  20. I have to say i am losing interest in DRB. I applied around Thanksgiving and never heard anything. I called them a few weeks ago and was told I passed underwriting and I should hear from them soon. Still nothing. Then today I read on Yelp that you can’t link your outside bank account through the DRB website and that you have to use BillPay from your outside account to make electronic payments to receive the .25% discount.

    • I will not comment on the specific situation of the person in the above posting, but only reiterate that we have made tremendous progress on our service levels and responses times since Thanksgiving/December, so please be assured that if you are a current applicant or if you apply in the future, you will receive fast and reliable service (as well as some of the lowest rates in the country).
      Regarding making automated/electronic payments, all borrowers are able to make automated payments, including both standard monthly payments and any prepayments, either through their current bank account, which can be linked to a DRB account, or through any BillPay system, whichever they prefer. All payments are received into a DRB bank account and then withdrawn/credited automatically against their loan. For those who have specific questions on the details of this process, please do not hesitate to call/email the bank.

      • AA’s statement about electronic payments is blatantly false. After 3 months of phone calls, long wait times, and never returned emails, I finally got all my paperwork and the loan approved. And now I was now told that in order to get the auto pay discount (0.25%) I have to open a DRB checking account to make the payment. I can’t use my regular (Wells Fargo) checking account.

        I like where he says if you have questions to call/email the back. Has he tried doing this!! You’ll never get a live person and in the off chance that you do they will transfer you to a number that goes to voicemail. DRB makes the post office seem efficient.

        • A DRB checking account is opened automatically as part of the loan closing process (the checking account has no fees and no minimum balance). The DRB account acts as the borrower’s repository for all payments (both monthly and prepayments), and this account can be linked to another bank, certainly a Wells Fargo account, so that payments can be made electronically from that account. This process requires no additional application/work for the borrower and allows for automated payments from a checking account or an electronic bill payment system. DRB currently has many borrowers using this automated process without any issues. I implore you to please call/email the bank again if you have questions on this (203-309-3940 or educationfinance@drbank.com), and I am sure they will resolve your issues (faster than the post office would).

  21. Does it make sense to only consolidate unsubsidized loans if these are the bulk majority and the government is still paying down interest on the subsidized ones for 2 more years? The unsubsidized loans are about $150,000 and the subsidized ones are ~$30,000

  22. Just finished talking to DRB representative, very professional, despite refuse to proceed with my application because I have no collateral, unless i get a cosign.

      • He ask about mortgage, but I’m renting. I explained to him that I have an old Camry and work as a hospitalist for more than a year. He wish me luck and urge me to reapply with a cosign.

        • Who did he want to cosign for you? Your parent who is retired or your Uncle who makes $45K a year? That’s bizarre. Their loss I guess. Did you try SoFi? I’m curious if they require some kind of collateral too. You’re the first to mention this requirement. It certainly wasn’t a requirement to get the student loans in the first place!

          • DRB’s student refinance loans are unsecured, which means we do not ask for any collateral. We do, however, look at a borrower’s income relative to their monthly obligations (e.g., student loan payments, mortgage/rent, car payments, revolving credit, etc.) to ensure the borrower will have enough monthly free cash flow to be able to pay down the loan over time. Typically, a doctor working full time (post-residency) will have sufficient income relative to their monthly obligations to qualify for a DRB student loan. However, if for any reason we find that this is not the case (e.g., above average monthly obligations and/or below average income), we do encourage borrowers to apply with a co-signer. Please note that while this debt to income requirement may not been part of the process to obtain the original student loans, the rates that the original lender offered were probably much higher than ours. In order for DRB to offer our very low rates, we need to run these type of debt to income assessments as part of our underwriting process.

  23. Dear AA and all,

    I applied back in December after initially hearing good things on this site about DRBank. I was initially skeptical but upon seeing a good response (initially) I felt that I was safe to apply. Indeed their customer service was in need of some help–after submitting an application no confirmation email is sent and no one contacts you to let you know that information was received. As days went by I contacted them via the general email and within a day received an email reply which designated my officer. He initially was very helpful and responsive to my emails and told me that additional information was needed. I submitted this over 1 month ago and made sure my officer confirmed receipt of my fax and he states it was passed on to the undersigners. It is now one month later and I have still heard nothing back. I emailed my officer–no reply. I emailed DRbank’s general refinancing email–no reply. I finally called the refinance phone number now provided on their website to inquire about my status and got no answer, only a voicemail which was not exactly professional-sounding. Hopefully I get a call back tomorrow, as the voicemail promises, but given the lack of replies thus far (indicating that AA’s promises back in December about improving customer service is as of yet unrealized) I am not holding my breath. So after I again searched “DRBank scam” and felt somewhat relieved by lack of results I have resigned to posting here in hopes that doing so will expedite my application and improve communication.

    Thanks

    • Sorry to hear about your experience. I’ll pass your email along to AA if he asks for it. I don’t think there is a scam here, but based on some of the other comments, it isn’t exactly a streamlined process yet.

      • Thanks. Got 2 phone calls and an email today from DRB. This Forum is the best way to get a prompt response. Fingers crossed things go smooth from here on. Will keep everyone updated.

          • Update on DRB. Since posting I would say communication and follow up with DRB went up dramatically. I faced the same problem others are facing and decided that it would be in my best interest (pun intended) to lock in now with a cosigner. I have now been conditionally approved and am awaiting finalization. Rates did go up since my first application but they matched the original for my cosigner application since I had already applied before, which I think speaks highly of them. Things were rough at first but I think DRB is making significant progress and is very receptive to feedback. I would like to thank AA and the members of his team who helped facilitate things and would recommend them to other members on this site who are considering refinancing.

  24. I had an interesting chat with the DRB folks today.

    There are a number of doctors who aren’t qualifying to have their loans refinanced due to a terrible debt to income ratio. Thus the talk about co-signers. Most of these are residents who are eager to start getting their loans paid off. Residents simply can’t afford to make payments on a $200-300K loan on a salary of $50K. That’s why the IBR program exists. There are, however, some attendings, with an income of $150-160K, but with debt burdens of $400-500K, who also don’t qualify. It simply doesn’t make good business sense. Would you loan 3 times someone’s annual salary to them without collateral or a co-signer? I wouldn’t either. It is a sad state of affairs that it can cost 3 times a physician’s gross salary to educate a physician. Apparently the government is willing to lend students money in situations where no sensible businessman would.

    They’re also making some significant changes so they can handle a much higher volume of refinances. There are something like 16K medical students graduating from medical school each year. Thus far DRB is refinancing about 100 a month but they are ramping up rapidly. Obviously there is a huge gap between those numbers.

  25. Just an update on my experience with DRB. I had some communications issues with them when I applied to refinance in November and felt like I had to stay on top of my rep to ensure that the transaction had closed. However, I’ve been happy thus far. I agree that customer service still needs work (I’m still waiting for my login info for the DRB website after a week for example, which I need in order to easily make an additional payment per month), but the monthly payment process has gone smoothly.

    I will add that I’m a lawyer two years into my practice at a big law firm, so I don’t have some of the same problems that you doctors are facing.

  26. I have 196k in debt from dental school. I am on track to have it all paid off in 4 years. I’m applying through DRB and debating between the 2.99 variable and the 5.25 fixed for 10 and making extra payments on top of that. What do you think is best for my situation?

  27. My wife is a resident, and has ~$130k in med school loans, at 6.8%. I previously submitted an application to SoFi, though the rate was not much better than what we have. The SoFi application asks for her income, which I stated ~$60k. Would SoFi or DRB accept our joint income, which is $155-160k? The application made no mention of joint income. If so what rates do you think are possible given her good credit and our joint income?

    • For DRB, if you co-signed on her loan, then the joint income would be considered. If the application is approved, she would get our current rates as indicated on our site- probably significantly lower than your current rates.

      • Thank you for the prompt reply. I will discuss with the wife. If we go forward, fixed vs variable will be our next decision point. I am leaning towards variable, given rates and our payback horizon.

    • Hi Scott – Elizabeth from SoFi here – we’d be happy to talk to you about your cosigner/joint income options, just give us a call: 855.456.7634 we’re here until 8pm PST tonight.

  28. Great posts! I just purchased the Kindle version of the WCI last night, and along with the website everything is top notch. I’m currently an Orthopaedic resident, and had a couple comments/questions regarding issues that most surgical subspecialty residents are probably concerned about as well (longer training years, higher income post fellowship).

    1. IBR: I extensively went over this with my finance dean in med school, and basically concluded there is no benefit as long as you adequately save. This may seem like a bold statement but allow me to explain. In IBR, you pay a fixed amount which usually goes toward your accumulating interest and rarely touches the principal. Interest still accumulates in both subsidized/unsubsidized loan types.

    This is to the contrary of forbearance, of which is the avenue I opted to pursue. You still accumulate the same interest on your subsidized/unsubsidized loans, but essentially do not pay your lender anything. However, all this money saved is not only available to you if you would happen to need it during residency (emergency, kids, home repairs, etc) but if your situation allows you can pay a lump sum prior to graduating residency. The benefit, as above, is two-fold: you prevent “x” amount of that accumulated interest in residency from being converted to principal (as long as you are punctual in forbearance applications) and you have that money to potentially invest/use should the situation arise. IBR essentially collects this “lump sum” in smaller installments over the course of your residency.

    WCI or anyone else, feel free to correct me on the above, but I believe it is correct. This, of course, is null and void if you plan on participating in the PSLF program, but most surgical sub-specialists that i’ve talked to really aren’t considering that option.

    2. Sofi/DRB: It’s unfortunate both of these institutions do not consider residents viable candidates for their services. I understand the debt/income ratios and such, but if I can get a physician loan for my house with absolutely no money down and zero collateral (other than proof of contract), it seems they are missing out on some sure-handed business. I’m certainly not advocating the physician home mortgage for all comers, btw, just a point. I would absolutely love to decrease all of the accumulating interest that is occurring during residency, but I essentially have no alternative given lack of collateral/equity in my home.

    Of course, some folks ask their parents for a loan via a 2nd mortgage through their parents bank, but asking for this would go against everything I believe in.

    3. In my situation, this all ties back to the question whether I should be saving money to pay off my loans or start a Roth IRA/529 (recent newborn). This is a topic for another forum, but certainly pertinent.

    Appreciate any comments!

    • A few thoughts on your lengthy comment:

      1) IBR is better than forebearance for two reasons. First, essentially everyone can get IBR easily, but forebearance involves more hassle. Second, IBR payments (even tiny ones) count toward IBR forgiveness (20 years) and PSLF forgiveness (10 years.) I think the best time to decide whether to go for PSLF is upon completion of training when you are undergoing a job hunt. A highly trained surgical subspecialist may have made 5-7 years of IBR payments and stands to receive a huge amount of PSLF by staying on as faculty for a few years, or by taking another job with a 501(c)3. Forebearance would be a huge mistake for someone otherwise eligible for PSLF. Sure, if you’re going to pay all your loans back, then forebearance isn’t much different from making tiny IBR payments. However, it is different and you seem to have some misconception that interest accumulated on an unsubsidized loan in forebearance is somehow different from interest accumulated on an unsubsidized loan on which IBR payments smaller than the interest due are made. I do not believe this is correct. Interest is interest, and the more of it that you accumulate, the more you will owe. Sure, if you can somehow invest the money and earn more on the investment than the interest rate, then you can come out ahead, but given that most current residents have loans of 6.8-8% or more, that’s a pretty big gamble, especially given low interest rates. Although most surgical sub-specialists you’ve talked to aren’t really considering that option, I think that’s probably a mistake. If you run the numbers, you’ll see that even for a specialty with a short training period like FM or EM PSLF works out well. It works out even better if you spend 5-7 years in residency/fellowship making IBR payments. I think you, and the other surgeons you’ve talked to, are probably making a mistake doing forebearance. It might be a very minor mistake, or potentially a huge one (if the doc is otherwise eligible, or can be eligible, for PSLF.)

      2. Remember when you buy a house and default on it the bank gets the house and gets to ruin your credit rating. If you refinance a student loan and default on it, the bank gets to ruin your credit rating but doesn’t actually get anything worth any money to them. Sure, docs are a pretty good bet, but they default too, especially when you consider their student loans may be the equivalent of 2-3 times their annual salary.

      3. Check out this post: http://whitecoatinvestor.com/student-loans-vs-investing/ or the relevant section in the book.

  29. I think we agree with the interest issue: the same amount will accrue regardless if IBR or forbearance. My point was that if you choose forbearance, the interest is not converted to principal until you start repayment, which typically is after residency. You can pay whatever you want toward your loan before that date (or nothing), and you won’t be paying interest on the interest that builds in residency. Of course if you choose forbearance, you lose out on the PSLF and monthly payment regimen.

    If I would’ve read this blog earlier in my career, I probably would have chosen IBR. A lot of factors go into that statement, but I would agree with pretty much all of your points.

    Point taken on the SoFi and DRB issue.

  30. My recent experience with DRB: I applied in Feb. 2014 to refinance my 6.8% Stafford loans, which total about $29,000. I’m a a government attorney and make about $57,000.

    Without calling or emailing me, DRB cancelled my application online, with a form statement that I failed to meet lender requirements. When I emailed for clarification, they said my debt to income ratio was too high, regardless of good credit history and great history paying down the loans from their original amount of $65,000.

    I can re-apply with a cosigner. Ha. Thanks, DRB.

  31. Thanks – I’m currently applying with SoFi, although their rates are not as good as DRB’s.

    I did get in touch with DRB’s loan origination partner campusdoor.com, who explained that my debt to income ratio was actually fine and below their threshold, but I failed DRB’s “income to living expense” test, which requires $4,500/month left over after rent, loan payments, and other expenses (i.e., the average amount of my [non-revolving] credit card expenses each month).

    Without $4,500/month ($54,000/year *after* rent, loan payment, and other expenses), it’s not worth applying with DRB without a cosigner.

    I’ll update on the SoFi process in a couple of days.

    • I was planning on applying for DRB refinancing at the end of residency. Looking at ~330k med school debt, starting salary 185k. I’ve run the numbers and know I can afford the 10 or 15yr fixed plan, but the above post has me worried I won’t qualify.

      How exactly do they calculate this? How do they know what you pay for rent? How do they know what your other expenses are, e.g. child-care? If you put everything on a debit instead of credit card, would it change the results? Are you penalized for using a 401(k) and other pre-tax savings plans since it reduces your net income each month? Maybe I’ll just have to go through it and find out on my own….

      • Let us know how it goes. Your DTI ratio is close to, but not as high as some who have been turned down. Perhaps AA can reveal a little bit about the underwriting process so people can have some idea if it is even possible with numbers like yours.

        $330K at 5% for 10 years is $4000 a month. $185K/year is $15416 per month, before tax. Servicing that debt will require 26% of your gross income. I can see why a business might not want to take a bet on you. A 15 year would reduce that to $3153, or 20%. It’s doable if you live like a resident for a few years, but that makes for a pretty tight budget after taxes, a mortgage of any reasonable size, a car payment, and family related expenses. Boosting income and growing into that income as slowly as you can is going to be your key to success with that massive debt burden. If I were you I’d be looking for a 501(c)3 position and going for PSLF given your debt burden and prospective income.

        • WCI, as always your input is much appreciated. I’ve previously run the numbers, and it causes me a bit of stress. IF I’d discovered this website at 22 instead of 29, life would be a little different. Thankfully, we have no consumer debt. I looked a lot at PSLF, but unfortunately in the area I’m looking almost all physician groups are contracted to provide their services, and the groups are not 501(c)3. Going to areas where this is more of an option are technically not impossible, but basically so from a family standpoint. We’re moving to a lower cost-of-living area and will try to mooch the grandparents for some childcare for awhile. We’re pretty realistic about the state we’re in, and know that short term sacrifice will provide long term benefits. I’ll re-post in a few months when I figure it all out.

          • I don’t want to sugarcoat this, you’ve definitely got some work and sacrifice ahead of you. You should be a little stressed. But don’t let it keep you up at night. Even after paying taxes and your student loans each month, you’re still going to have more money to spend than the average American, and eventually, you’ll be doing quite well. Pray for inflation!

        • We also look at other debt (ie. car payments) when making our underwriting decision, so it is hard to give an answer based the data provided above. AM, if you want, let’s speak on the phone, and I would be happy to run the numbers before you apply to give you a sense of your eligibility. Please email educationfinance@drbank.com and we can setup a time to speak.

  32. Perhaps this is dumb question, but does refinancing with either group affect the way creditworthiness is calculated? For example with loans being listed under sallie mae for federal plus loans etc was this considered “good debt” and now after refinancing do our loans just look like regular expense loans which might make our debt to income ratio look worse for future credit applications, say for a auto or home loan etc?

  33. Hello,

    My wife and I are both finishing residency with signed contracts in excess of $700,000/yr gross combined. We have each have educational debt in the neighborhood of $380,000. I also emailed DRB about a month ago but am very interested in doing a 10 year variable rate loan for both my debt and my wife’s.

    Thanks!

    • Jake – let us know if SoFi can help you out too – you can just give us a call: 855-456-7634
      Something to keep in mind with a variable rate is the interest rate cap. With SoFi you know you won’t have to worry about your interest rate going above 8.95%. According to DRB’s website, their cap is 18%.

  34. For SoFi, my undergrad is listed (no undergrad debt), my med school isn’t (painful amount of med school debt). Does that make me eligible? Also, may have been mentioned above, but can you do a hybrid variable/fixed interest rate with Sofi?

    • Hi AM – yes, you should apply via your undergrad school to refinance your medical school debt. You just had to graduate from an eligible institution, you don’t have to have debt from it. As for getting a hybrid loan, we can definitely help with that. While we don’t offer one loan that mixes both rates – you can split your loans into two SoFi ReFi loans – one fixed, one variable – and get the desired end result. Just give us a call and we’d be happy to discuss your personal situation: 855-456-7634

  35. I’ve been following your blog and thanks for all the helps and tips!
    I’m a 2nd year dental student and by the time I graduate, I’d rack up ~340k in debt. As your 3rd option in the blog, you mentioned about converting your high-rate, non-deductible, non-forgiveable, student loan interest into low-rate, deductible, forgiveable mortgage interest.

    Could you elaborate on that more? I called Chase and Bank of America, and they don’t offer services like that. I’m wondering if I can get more information about that (my parents are willing to buy a house for me after graduation). Thanks!

    • Imagine you have $200K in student loans. Imagine also you own a $500K home and have a $200K mortgage on it. If you do a “cash-out” refinance on the home, you could take out $200K and use it to pay your student loans. Voila, you’ve converted your student loan debt into mortgage debt.

      • I did this with my rental house. The let you refinance to 70% of your homes value. Since you can only cash to 70% this trick will only work if you already have a significant amount of equity built up in your house. The interest rate isn’t as good on a cash out refinance as it would be if you were buying a house but it’s better than 6.8%. Plus the interest becomes deductible. There’s really no negative to it as long as you go with a company that doesn’t hose you with fees. I used rateone and was quite pleased. Got just over 30k back that I immediately threw at 6.8% loans.

  36. We had a great experience with both DRB and SOFI. My wife got a rate of 2.75% variable on 155k in loans from DRB. Admittedly her DRB experience took a while and setting up the autopay is a bit of a pain but I’d do it again in a heartbeat. I had her apply roughly 45 seconds after this blog originally went up. Her DRB application did take over a month to go through. I’m sure they are swamped with an overwhelming response of people desperate to dump loans at 6.8 % or worse. My experience with SOFI was smoother than hers with DRB and I ended up with a variable rate of 3.9%. If you can pay the loans off quickly like we are doing I would go with a variable rate especially if you could potentially throw emergency fund money or taxable investments toward the balance in the unlikely event of rapidly rising increasing interest rates. I referred my friend to DRB and he opted for the half and half as he can’t pay back the loans as fast so that’s a nice option to hedge your bets so to speak. If the rates really sky rocketed to 18% I think we’d all have a lot more to worry about than student loan payments. Love both companies. Wish they had been around 5 years ago but glad they’re here now!

  37. Update on my SoFi experience:

    Applied around Feb. 20th. About a week later, I had a message that my application was being processed and they would contact me within 1-2 business days. 1 business day passed…then 2….then 3….then 4. I called them last week to check the status and the rep told me they would update me on Friday, or Monday at the latest. Didn’t happen.

    Today is Tuesday, so I called again. The new rep I got apologized and immediately sent me a pre-approval email [Note: While annoying, SoFi's application and approval process was still much easier and quicker then DRB and its loan origination partner campusdoor.com]. Anyway, the upshot is that SoFi offered me the following options:

    5-year fixed rate of 6.240%, or 5.990% with AutoPay;
    10 year fixed rate loan at a rate of 6.625%, 6.375% with AutoPay; and
    10 year variable rate loan at a starting rate of 5.160%, 4.910% with AutoPay.

    I’m currently thinking that it’s only worth it to refinance if I go from my current rate of 6.55% to the variable rate of 4.91%. I’ve never had a variable rate loan and I’m hesitant to switch for what is, at most, about $800 saved in interest over the life of the loan, with the possibility of rates rising toward or my current rate (no idea what the chances of that happening are).

    If I refinance at 5.99%, then I’m saving maybe $250, which is too small for the nuisance of switching loan owners and servicers, setting up a new auto-pay, the inevitable delay in payments as the switch is made and the previous servicer is paid-off, learning how to work with a new servicer, and so on.

  38. Hi CS – Now that you’ve got your options from us we’d love to discuss these with you and help you make the right decision for your situation. Give us a call: 855-456-7634.

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