This month, SoFi, a leading player in the student loan refinancing space, announced its new Medical Resident Student Loan Refinancing product. As the name suggests, the product is aimed at medical residents and fellows, and allows them to refinance student loans at lower rates prior to becoming an attending physician.
The process of becoming a doctor is often a long and expensive one, and about three-quarters of all medical students rely on loans to get through school. In 2016, the average doctor-to-be owed a staggering $190,000 in student loan debt upon graduation, according to the Association of American Medical Colleges.
Of course, most medical professionals earn salaries that are sufficient to pay down hefty debt loads in relatively short order. But medical school graduates don’t earn a full-fledged physician salary from day one. During residency, which can take up to 54 months, they typically earn only about $60,000.
At the start of residency many borrowers elect to defer loans or enroll in income-based repayment plans, which peg monthly payments to a percentage of earnings regardless of the total balance. In either case, interest continues to accrue on the outstanding balance.
Medical Resident Student Loan Refinancing
SoFi offers residents and fellows the opportunity to lock in lower interest rates at the start of a residency or fellowship, which can help to reduce the interest they pay over the life of their loans.
Here’s how SoFi’s Medical Resident Student Loan Refinancing works:
- Residents and fellows can apply for refinancing once they’ve been matched to a residency or fellowship program
- Applicants must be within four years of becoming an attending physician
- During the residency or fellowship period, borrowers make payments of just $100 a month
- Interest will continue to accrue on the outstanding balance, but it won’t be capitalized until the borrower completes the residency or fellowship
- After residency, borrowers resume making regular monthly payments
A Note of Caution
If you’re considering refinancing federal student loans with SoFi – or any other lender, for that matter – you should carefully weigh the benefits against the risks. While interest rates may be higher than what you’ll secure from a private lender, federal loans come with a range of benefits and protections attached. These include things like income-based repayment and student loan forgiveness, which can come in handy if things don’t go exactly as planned. Refinancing with a private lender means that you’ll forgo these protections, and this isn’t a decision you should take lightly.
Why This Makes Sense for Sofi
This is good business for SoFi.
The company’s business model is built around identifying the most credit-worthy borrowers. When deciding who qualifies for a refinancing loan, SoFi takes into account things like education and career outlook, honing in on applicants who are set up for long-term success. This helps the company keep default rates low which, in turn, allows them to offer competitive interest rates. But it also limits their potential applicant pool.
Offering recent medical school graduates an incentive to refinance with SoFi early on makes a lot of sense. As a whole, entering residents and fellows should have little trouble repaying their loans over the long term. And, in a marketplace where multiple lenders are competing for the same high-quality customers, securing relationships with borrowers early on may give SoFi an edge.