Refinancing Student Loans After Pharmacy School

SEPTEMBER 08, 2016

The average student loan debt for PharmD graduates amounted to $157,425 in 2016, which is an 8.8% increase from 2014, according to the American Association of Colleges of Pharmacy’s 2016 Graduating Student National Summary Report.
Being able to effectively manage your finances after graduating pharmacy school is crucial in achieving long-term financial stability. Yet, many individuals either don’t take the time to make a financial blueprint, or don’t see the value in doing so.
According to a recent survey released by Northwestern Mutual, more than one-third of Americans haven’t done anything to plan for their financial future. Moreover, study results show a lack of financial planning can lead to financial anxiety, negatively impacting careers, personal relationships, and outlooks on the future.
One important aspect of financial planning for recent pharmacy graduates involves deciding how to best manage your student loans. This article will detail what it means to refinance student loans, the benefits of doing so, common finance terminology, and my own personal experiences.
My Story
Like most pharmacy graduates, I finished pharmacy school owing a significant amount of money in student loans. Despite working throughout school, I had to take out sizable loans to pay tuition, which seemed to increase every year. To be completely honest, for quite a while, I avoided looking at the total amount owed among all of the different loans and providers because it just seemed too daunting.
After graduating in 2015, I completed a PGY1 residency. During this time, I made roughly one-third of a pharmacist’s pay, and despite working per-diem at an independent pharmacy, I made little progress on paying down my loans. I signed up for an Income-Based Repayment (IBR) plan on my federal loans, and I paid the minimum on my private loans.
After the year was over, I was hired on full-time at my current employer and knew it was time to take a hard look at my student loans. The total amount was $142,415.29, which actually wasn’t as bad as I expected. Still, I was getting killed every month due to high interest rates on my loans, and it seemed like the majority of my monthly payments would just be covering the interest.
I then started to do some research to compare my options with refinancing, thus beginning my journey to financial planning.
Consolidating vs Refinancing
Before we get into specifics, let’s first define some common finance terms.
This involves combining multiple loans into one giant loan. It can be subdivided into federal and private loan consolidation. 
Federal loan consolidation is a government program allowing you to combine multiple federal loans into one single loan. The interest rate on your new loan becomes a weighted average of the prior loan rates. Therefore, this process won’t save you money or change your monthly payment (assuming you don’t extend the repayment period). The major benefit is convenience, in that you’ll end up with fewer bills to pay and keep track of each month.
Private loan consolidation also allows you to combine multiple loans into one. The major difference is the interest rate on the new consolidated loan isn’t a weighted average based on your old loans, but rather calculated based on a number of different factors. In practical terms, when you consolidate student loans with a private lender, you’re also refinancing them.
This means you use a new loan to pay off one or more existing loans. Again, this process results in a new interest rate on the consolidated loan. The specific interest rate is based on your credit history, salary, total dollar amount owed, and a number of other factors.
This can result in benefits like lowered monthly payments, paying off loans quicker, saving money on interest, and the convenience of paying off one monthly bill. Some private lenders will only refinance private loans, whereas others will refinance both private and federal student loans for additional convenience and cost savings.
On the flip side, refinancing your private and federal loans together means giving up favorable repayment terms like IBR plans and public service loan forgiveness. Although these may not be commonly used repayment options for the majority of pharmacists, you should consider all your options before refinancing.

Timothy O'Shea, PharmD
Timothy O'Shea, PharmD
Timothy O'Shea, PharmD, is a Clinical Pharmacist working at a large health insurance plan on the east coast. Additionally he works per diem at a retail pharmacy chain. He graduated from MCPHS University - Boston in 2015 and subsequently completed a PGY-1 Managed Care Pharmacy Residency. His professional interests include pharmacy legislation and managed care pharmacy. He can be followed on Twitter at @toshea125.