Student Loans: How We Decided to Refinance

As many dentists have before, my wife took a federal loan to fund her dental school education. For years we contemplated refinancing her student loans. We had heard it was something to consider but never gave the idea much thought because frankly, we found the entire process confusing and quite intimidating as well.

Her loan amount was astronomical (more than $520,000) and we weren’t sure how to approach it. I think in many ways, we didn’t want to acknowledge the loans because we were contently naïve. We assumed we would make payments the same way countless dentists before us had and over time they might handle themselves. Obviously, this wasn’t/isn’t true.

The decision to refinance the student loan for us was one that was determined by our answers to a couple of major questions:

1) How much could we afford to pay on a monthly basis?

Especially early in our careers, we realized that in addition to a large debt we had little to nothing in the bank. This meant we were functionally broke. Realistically we were living paycheck-to-paycheck trying to establish some financial stability and a foundation for our futures. While for the first time in our lives we were earning 6-figure salaries, there were a number of personal life events that limited our ability to commit large amounts towards loan payments (i.e. relocation expenses, wedding expenses, etc.) Additionally, plans to start a family were weighing heavy on our willingness to financially commit large sums of our monthly income to a mandatory loan payment. But after all was said and done, we realized we had the ability to commit nearly all of my wife’s salary towards loan payments while continuing to live modestly on mine.

2) What is our approach to debt?

My wife and I were deciding largely between paying our loans down aggressively to avoid large sums of interest accruement or making minimum payments over the course of 20-25 years before hoping to qualify for loan forgiveness. This decision was approached from two perspectives: financial and psychological.

Here’s a breakdown according to the numbers:

Based on our monthly income at the current interest rates, if we were to make standard payments towards our loans (at least $6K/month), we could pay the loan in under 10 years with a total amount paid of $735,851.

On the other hand, if we were to make minimal payments through one of the government offered income-driven repayment plans, we would be paying much more over the course of 20-25 years. See two examples below:

Using the Revised Pay As You Earn (REPAYE) plan:

Total Amount Paid: $893,655
Estimated taxes on the loan forgiven: $145,221
Grand total: $1,038,876

Using the Pay As You Earn (PAYE) plan:

Total Amount Paid: $615,651
Estimated taxes on the loan forgiven: $197,813
Grand total: $813,464

*Keep in mind these estimates are based on 1) Dual income and tax status of married filing jointly 2) The assumption that the policy of loan forgiveness will never be discontinued.

As a largely “debt averse” household, the idea of paying an ADDITIONAL $300-500K or a total of over twice the original loan is simply unbearable. Given these numbers we determined it would be in our interest to pay more now, reduce the amount of interest accrual and avoid paying substantially more over time.

Additionally, the psychological stress of carrying half a million dollars of student loan debt is ever-present. The concept of shouldering a debt load for over two decades simply didn’t sound appealing. The financial freedom in household decision-making is invaluable. Equally important is freedom in our professional lives, where we absolutely do not want production pressure to affect job selections, clinical judgments or methods of practice. Especially in a profession like dentistry, where business ethics are always a topic of discussion, we pride ourselves on being conscientious, conservative, patient-driven providers.

3) How Does Refinancing Help Us?

Once we decided to be aggressive about repayment, we made the decision to refinance the loan. A little simple math made this next progression easy for us.

As mentioned earlier, at a 7% interest rate over 10 years, the monthly payment would be about $6100 for total amount of $735K on the life of the loan. Successfully refinancing the loan at a 6% interest rate over the same 10 year period would yield a monthly payment of $5800 for a total of $699K. At 5%, the monthly would be $5500 for a total of $668K. So on and so forth, the trend is lower interest rate, lower monthly payments, lower total amount paid.


In the End

Eliminating the entirety of the debt, in our minds, provides the long term financial freedom that simply isn’t allowable with seemingly endless monthly loan payments. We want to see the grit we invest in our everyday work to be reflected in the salaries we earn. In addition to helping people, we entered into dental medicine with the idea that we were making an investment of time (in the extra years of schooling) and money (in student loans) for a return of a comfortable life. We didn’t intend to be paying interest on that investment for the rest of our lives. Ultimately, we knew we needed to be aggressive, make money while we’re still young and while we didn’t yet have children. The best means of doing that was to refinance the student loans in order to decrease the amount of interest accrual and in the end: save us money.


Have you refinanced your student loans? What factors played in your decision? Please share!

2 thoughts on “Student Loans: How We Decided to Refinance

  • March 29, 2018 at 3:21 am

    Wishing you luck! My wife and I know your situation well. After graduating, we found ourselves over $500k in debt. We took the same approach, refinancing out of the awful federal rates. Since that time, we’ve refinanced again and now have a locked in a sub-3% fixed rate for the remaining loan balance.

    With two relatively strong salaries (dentist and engineer), we never really considered any of the income based strategies as we we never felt limited in our ability to make the standard payments. Refinancing to lower rates only made that easier.

    I also wanted to say thank you for your rational review of repaying massive student loan debt. There’s a lot of folks out there in our situation, and if they were to believe some of the things written about dentists and student loan debt, you’d think bankruptcy was just this side of inevitable.

    • March 31, 2018 at 8:59 pm

      DebtAscent, thanks for taking the time to read! It’s always refreshing to hear from another couple in a similar financial situation. We have now successfully refinanced on our third attempt and do have plans to refinance again at some point in the future.

      Also, I absolutely agree with you. There are many people out there who are likely feeling helpless. Hopefully by sharing our experiences they can see that they don’t have to feel that way.


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