The most significant benefit to refinancing dental school loans is the amount you can save on interest. The average dental school student graduates with $304,824 in debt—higher than what most medical school students graduate with.
Interested borrowers should consider the potential benefits of refinancing, like reducing your monthly payment, along with the potential drawbacks, like losing out on federal student loan protections and perks. Many dentists may earn enough that the income-driven repayment plans and possible loan forgiveness programs of federal student loans don’t benefit them. Instead, they may benefit from the lower interest rates that refinancing can provide.
Read on to learn more about the refinance process, including how to pick a lender and what kind of term to choose.
In this article:
- Benefits to refinancing dental school loans
- Downsides to refinancing dental school loans
- Should you refinance dental school loans?
- How to refinance dental school loans
Benefits to refinancing dental school loans
Refinancing your dental school loans can help you pay less interest, repay your loan faster, and simplify your monthly payments. In the sections below, we’ll explain how refinancing can lead to these benefits.
Lower your interest rate
Most borrowers refinance dental school loans to get a lower interest rate and pay less interest over the life of the loan.
Here’s how it works. Let’s say you owe $300,000 in dental school loans with a 6% interest rate and a 20-year term. If you can refinance to a 4% interest rate and a 20-year term, you’ll pay $79,524 less in total interest. Your monthly payment will also be $331 less. You could then put that extra money toward your remaining debt, use it for a down payment on a home, or contribute to a retirement plan.
Consolidate multiple loans into one
Most borrowers have multiple student loans with various loan servicers. When you refinance, you can combine all those loans. This is known as loan consolidation, and it can help simplify the repayment process. This is not to be confused with consolidating federal student loans into a Federal Consolidation Loan, which is quite different.
Instead of worrying about multiple payments with different due dates, you’ll only have to remember one payment. This will reduce the chance of missing a payment and incurring costly late fees. Late payments can also impact your credit score, which will affect your ability to qualify for another loan.
Alter your repayment term
When you refinance your student loans, you can choose a different repayment term.
If you pick the same term and a lower interest rate, your monthly payments will be lower, and you’ll pay less interest.
If your biggest concern is paying as little interest as possible, you should choose a shorter-term loan because lenders offer the lowest interest rates for the shortest terms. This may result in a higher monthly payment, so be sure you can afford it before refinancing.
Some borrowers extend the loan term and minimize their monthly payments. Depending on the interest rate you’re offered, a longer-term loan could have you paying more total interest than before.
The best term for you depends on your budget, cash flow, and financial goals. If you care more about repaying your loans quickly, choose a shorter term. If you want to prioritize investing or other goals, choose a longer term.
Downsides to refinancing dental school loans
While refinancing dental school loans can make mathematical sense, there are some downsides to consider.
Loss of federal protections
When you refinance federal student loans, they become private loans, and you’ll lose access to federal loan perks.
You’ll no longer have some protections, including the following ones:
Borrowers with federal student loans can choose from several different repayment options, including income-driven repayment (IDR). IDR plans use your income, family size, and place of residence to determine your monthly payment. While high-income borrowers may not benefit from IDR, many borrowers who switch to an IDR plan will get a lower monthly payment.
After 20 or 25 years on an IDR plan, the remaining loan balance will be forgiven. If the loans are forgiven between 2021 and 2025, borrowers won’t have to declare the forgiven amount as taxable income. Some experts believe this will become a permanent feature of IDR loan forgiveness, but this is still up in the air.
Private student loans do not offer IDR plans. If you want to lower your monthly payment on a private loan, the only option is to refinance to a longer term.
Loan forgiveness programs
Federal student loans come with several loan forgiveness programs that dentists may qualify for. The most common option is the Public Service Loan Forgiveness Program, which requires 10 years of work for a qualifying nonprofit or government organization. Borrowers who work for a PSLF-eligible employer will also be on an IDR plan, so their monthly payments will be lower.
Dentists may also qualify for other federal and state loan repayment programs (LRPs) if they work in an underserved area. Many of these LRPs are only available for borrowers with federal loans.
Longer deferment and forbearance options
Borrowers with federal student loans can defer their loans for several years, while most private lenders cap forbearance at one year in total. If you lose or quit your job, having the option to defer your loans could be crucial.
When the Covid-19 pandemic began, the government paused payments and suspended interest on most federal loans. Dentists with federal loans were not required to make monthly payments during this time, but those with private loans were.
Should you refinance dental school loans?
If you have federal student loans, make sure you’re not eligible for any loan forgiveness programs before refinancing. If eligible for loan forgiveness, you may save more by keeping the loans you have. If your spouse doesn’t work or has an unsteady income stream, keeping your federal loans may provide more financial security.
Generally, borrowers with private loans can save money by refinancing. While private loans have fewer protections than federal loans, the lower interest rate after refinancing might benefit high-earners more than the federal loan repayment programs, forgiveness programs, or deferral options.
Refinancing student loans can be especially beneficial to borrowers who plan to open their own practices because lower monthly payments can help them qualify for larger business loans.
How to refinance dental school loans
If you’re interested in refinancing your student loans, the first step is comparing multiple lenders to find the best rates and terms. Fill out several applications, ideally within a two-week period, to see which lender offers you the best rates. If the rates are comparable, look at other factors like fees, loan amount limits, forbearance options, and more.
Laurel Road offers a special discount for members of the American Dental Association, and SoFi provides lower rates for members of the American Association of Orthodontists.
While every student loan company has specific criteria, you’ll generally need a stable income source and a credit score higher than 600. In some cases, you can add a cosigner to increase your chances of being approved or receiving a lower interest rate.
There’s no limit to how many times you can refinance dental school loans. Some borrowers refinance as often as once a year if they can continue to lower their interest rate.